Correlation Between McKesson and Wyndham Hotels

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

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

Diversification Opportunities for McKesson and Wyndham Hotels

0.59

Correlation Coefficient

McKesson  Wyndham Hotels

Very weak diversification

The 3 months correlation between McKesson and Wyndham is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding McKesson and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of McKesson i.e., McKesson and Wyndham Hotels go up and down completely randomly.

Pair Corralation between McKesson and Wyndham Hotels

Considering the 90-day investment horizon McKesson is expected to generate 0.92 times more return on investment than Wyndham Hotels. However, McKesson is 1.09 times less risky than Wyndham Hotels. It trades about 0.07 of its potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about 0.05 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

McKesson  vs.  Wyndham Hotels Resorts

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.

Wyndham Hotels Resorts

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical indicators, Wyndham Hotels demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McKesson and Wyndham Hotels

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

The idea behind McKesson and Wyndham Hotels Resorts 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.