Correlation Between Associated British and Target Corp

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Can any of the company-specific risk be diversified away by investing in both Associated British and Target Corp 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 Associated British and Target Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated British Foods and Target Corp, you can compare the effects of market volatilities on Associated British and Target Corp 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 Associated British with a short position of Target Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Target Corp.

Diversification Opportunities for Associated British and Target Corp

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Associated and Target is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Target Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Corp and Associated British 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 Associated British Foods are associated (or correlated) with Target Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Corp has no effect on the direction of Associated British i.e., Associated British and Target Corp go up and down completely randomly.

Pair Corralation between Associated British and Target Corp

Assuming the 90 days trading horizon Associated British Foods is expected to generate 0.59 times more return on investment than Target Corp. However, Associated British Foods is 1.7 times less risky than Target Corp. It trades about 0.02 of its potential returns per unit of risk. Target Corp is currently generating about -0.01 per unit of risk. If you would invest  179,537  in Associated British Foods on October 22, 2024 and sell it today you would earn a total of  21,663  from holding Associated British Foods or generate 12.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.4%
ValuesDaily Returns

Associated British Foods  vs.  Target Corp

 Performance 
       Timeline  
Associated British Foods 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Target Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Associated British and Target Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Associated British and Target Corp

The main advantage of trading using opposite Associated British and Target Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British position performs unexpectedly, Target Corp 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 Target Corp will offset losses from the drop in Target Corp's long position.
The idea behind Associated British Foods and Target Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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