Correlation Between McKesson and EDAP TMS

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

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

Diversification Opportunities for McKesson and EDAP TMS

0.04

Correlation Coefficient

McKesson  EDAP TMS

Significant diversification

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

Pair Corralation between McKesson and EDAP TMS

Considering the 90-day investment horizon McKesson is expected to generate 0.31 times more return on investment than EDAP TMS. However, McKesson is 3.2 times less risky than EDAP TMS. It trades about 0.22 of its potential returns per unit of risk. EDAP TMS SA is currently generating about 0.01 per unit of risk. If you would invest  57,012  in McKesson on December 28, 2024 and sell it today you would earn a total of  9,794  from holding McKesson or generate 17.18% return on investment over 90 days.

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

McKesson  vs.  EDAP TMS SA

McKesson

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, McKesson disclosed solid returns over the last few months and may actually be approaching a breakup point.

EDAP TMS SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EDAP TMS SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, EDAP TMS is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with McKesson and EDAP TMS

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

The idea behind McKesson and EDAP TMS SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.