Correlation Between Target Corp and Caledonia Investments

Can any of the company-specific risk be diversified away by investing in both Target Corp and Caledonia Investments at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Target Corp and Caledonia Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Target Corp and Caledonia Investments, you can compare the effects of market volatilities on Target Corp and Caledonia Investments and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Target Corp with a short position of Caledonia Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Corp and Caledonia Investments.

Diversification Opportunities for Target Corp and Caledonia Investments

-0.37

Correlation Coefficient

Target Corp  Caledonia Investments

Very good diversification

The 3 months correlation between Target and Caledonia is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Target Corp and Caledonia Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Investments and Target Corp is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Target Corp are associated (or correlated) with Caledonia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caledonia Investments has no effect on the direction of Target Corp i.e., Target Corp and Caledonia Investments go up and down completely randomly.

Pair Corralation between Target Corp and Caledonia Investments

Assuming the 90 days trading horizon Target Corp is expected to generate 2.83 times less return on investment than Caledonia Investments. In addition to that, Target Corp is 1.66 times more volatile than Caledonia Investments. It trades about 0.06 of its total potential returns per unit of risk. Caledonia Investments is currently generating about 0.27 per unit of volatility. If you would invest  343,000  in Caledonia Investments on October 9, 2024 and sell it today you would earn a total of  12,500  from holding Caledonia Investments or generate 3.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Target Corp  vs.  Caledonia Investments

Target Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Target Corp is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Caledonia Investments

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caledonia Investments is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Target Corp and Caledonia Investments

The main advantage of trading using opposite Target Corp and Caledonia Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Corp position performs unexpectedly, Caledonia Investments can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Caledonia Investments will offset losses from the drop in Caledonia Investments' long position.

The idea behind Target Corp and Caledonia Investments pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.