Correlation Between Boeing and McKesson

Can any of the company-specific risk be diversified away by investing in both Boeing and McKesson 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 Boeing and McKesson into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Boeing and McKesson, you can compare the effects of market volatilities on Boeing and McKesson 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 Boeing with a short position of McKesson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and McKesson.

Diversification Opportunities for Boeing and McKesson

0.88

Correlation Coefficient

Boeing  McKesson

Very poor diversification

The 3 months correlation between Boeing and McKesson is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and McKesson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McKesson and Boeing 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 The Boeing are associated (or correlated) with McKesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McKesson has no effect on the direction of Boeing i.e., Boeing and McKesson go up and down completely randomly.

Pair Corralation between Boeing and McKesson

Assuming the 90 days horizon Boeing is expected to generate 5.8 times less return on investment than McKesson. In addition to that, Boeing is 1.03 times more volatile than McKesson. It trades about 0.01 of its total potential returns per unit of risk. McKesson is currently generating about 0.08 per unit of volatility. If you would invest  860,608  in McKesson on October 2, 2024 and sell it today you would earn a total of  338,960  from holding McKesson or generate 39.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

The Boeing  vs.  McKesson

Boeing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Boeing showed solid returns over the last few months and may actually be approaching a breakup point.

McKesson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, McKesson showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boeing and McKesson

The main advantage of trading using opposite Boeing and McKesson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing position performs unexpectedly, McKesson 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 McKesson will offset losses from the drop in McKesson's long position.

The idea behind The Boeing and McKesson 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.