Correlation Between McKesson and TARGET

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

By analyzing existing cross correlation between McKesson and TARGET P 7, you can compare the effects of market volatilities on McKesson and TARGET 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 TARGET. Check out your portfolio center. Please also check ongoing floating volatility patterns of McKesson and TARGET.

Diversification Opportunities for McKesson and TARGET

-0.26

Correlation Coefficient

McKesson  TARGET

Very good diversification

The 3 months correlation between McKesson and TARGET is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding McKesson and TARGET P 7 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TARGET P 7 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 TARGET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TARGET P 7 has no effect on the direction of McKesson i.e., McKesson and TARGET go up and down completely randomly.

Pair Corralation between McKesson and TARGET

Considering the 90-day investment horizon McKesson is expected to generate 0.75 times more return on investment than TARGET. However, McKesson is 1.33 times less risky than TARGET. It trades about 0.07 of its potential returns per unit of risk. TARGET P 7 is currently generating about 0.02 per unit of risk. If you would invest  37,447  in McKesson on October 9, 2024 and sell it today you would earn a total of  20,596  from holding McKesson or generate 55.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	38.51%
Values	Daily Returns

McKesson  vs.  TARGET P 7

McKesson

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 10 (%) 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.

TARGET P 7

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TARGET P 7 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, TARGET sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McKesson and TARGET

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

The idea behind McKesson and TARGET P 7 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..