Correlation Between Target and Filament Health

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

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

Diversification Opportunities for Target and Filament Health

0.04

Correlation Coefficient

Target  Filament Health

Significant diversification

The 3 months correlation between Target and Filament is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Target Group and Filament Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Filament Health Corp and Target 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 Group are associated (or correlated) with Filament Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Filament Health Corp has no effect on the direction of Target i.e., Target and Filament Health go up and down completely randomly.

Pair Corralation between Target and Filament Health

Given the investment horizon of 90 days Target is expected to generate 3.14 times less return on investment than Filament Health. But when comparing it to its historical volatility, Target Group is 1.15 times less risky than Filament Health. It trades about 0.03 of its potential returns per unit of risk. Filament Health Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4.35  in Filament Health Corp on September 14, 2024 and sell it today you would lose (0.35) from holding Filament Health Corp or give up 8.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Target Group  vs.  Filament Health Corp

Target Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Target Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Target showed solid returns over the last few months and may actually be approaching a breakup point.

Filament Health Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Filament Health Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Filament Health reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Target and Filament Health

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

The idea behind Target Group and Filament Health 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.