Correlation Between COL Financial and Medco Holdings

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

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

Diversification Opportunities for COL Financial and Medco Holdings

-0.08

Correlation Coefficient

COL Financial  Medco Holdings

Good diversification

The 3 months correlation between COL and Medco is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding COL Financial Group and Medco Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medco Holdings and COL Financial 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 COL Financial Group are associated (or correlated) with Medco Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medco Holdings has no effect on the direction of COL Financial i.e., COL Financial and Medco Holdings go up and down completely randomly.

Pair Corralation between COL Financial and Medco Holdings

Assuming the 90 days trading horizon COL Financial Group is expected to under-perform the Medco Holdings. But the stock apears to be less risky and, when comparing its historical volatility, COL Financial Group is 4.3 times less risky than Medco Holdings. The stock trades about -0.03 of its potential returns per unit of risk. The Medco Holdings is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Medco Holdings on December 29, 2024 and sell it today you would lose (1.00) from holding Medco Holdings or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	44.83%
Values	Daily Returns

COL Financial Group  vs.  Medco Holdings

COL Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days COL Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, COL Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Medco Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Medco Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Medco Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with COL Financial and Medco Holdings

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

The idea behind COL Financial Group and Medco Holdings 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.