Correlation Between Medco Holdings and COL Financial

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

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

Diversification Opportunities for Medco Holdings and COL Financial

-0.45

Correlation Coefficient

Medco Holdings  COL Financial

Very good diversification

The 3 months correlation between Medco and COL is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Medco Holdings and COL Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COL Financial Group and Medco Holdings 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 Medco Holdings are associated (or correlated) with COL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COL Financial Group has no effect on the direction of Medco Holdings i.e., Medco Holdings and COL Financial go up and down completely randomly.

Pair Corralation between Medco Holdings and COL Financial

Assuming the 90 days trading horizon Medco Holdings is expected to generate 6.32 times more return on investment than COL Financial. However, Medco Holdings is 6.32 times more volatile than COL Financial Group. It trades about 0.05 of its potential returns per unit of risk. COL Financial Group is currently generating about -0.04 per unit of risk. If you would invest  14.00  in Medco Holdings on August 31, 2024 and sell it today you would lose (2.00) from holding Medco Holdings or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	46.52%
Values	Daily Returns

Medco Holdings  vs.  COL Financial Group

Medco Holdings

Risk-Adjusted Performance

0 of 100

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.

COL Financial Group

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Medco Holdings and COL Financial

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

The idea behind Medco Holdings and COL Financial Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.