Correlation Between McKesson and MTN Group

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

By analyzing existing cross correlation between McKesson and MTN Group Limited, you can compare the effects of market volatilities on McKesson and MTN Group 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 MTN Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of McKesson and MTN Group.

Diversification Opportunities for McKesson and MTN Group

0.68

Correlation Coefficient

McKesson  MTN Group

Poor diversification

The 3 months correlation between McKesson and MTN is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding McKesson and MTN Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTN Group Limited 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 MTN Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTN Group Limited has no effect on the direction of McKesson i.e., McKesson and MTN Group go up and down completely randomly.

Pair Corralation between McKesson and MTN Group

Considering the 90-day investment horizon McKesson is expected to generate 2.68 times less return on investment than MTN Group. But when comparing it to its historical volatility, McKesson is 3.33 times less risky than MTN Group. It trades about 0.19 of its potential returns per unit of risk. MTN Group Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  448.00  in MTN Group Limited on December 20, 2024 and sell it today you would earn a total of  137.00  from holding MTN Group Limited or generate 30.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	79.66%
Values	Daily Returns

McKesson  vs.  MTN Group Limited

McKesson

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 15 (%) 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.

MTN Group Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTN Group Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, MTN Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McKesson and MTN Group

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

The idea behind McKesson and MTN Group Limited 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.