Correlation Between Medco Holdings and First Abacus

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

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

Diversification Opportunities for Medco Holdings and First Abacus

-0.22

Correlation Coefficient

Medco Holdings  First Abacus

Very good diversification

The 3 months correlation between Medco and First is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Medco Holdings and First Abacus Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Abacus Financial 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 First Abacus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Abacus Financial has no effect on the direction of Medco Holdings i.e., Medco Holdings and First Abacus go up and down completely randomly.

Pair Corralation between Medco Holdings and First Abacus

Assuming the 90 days trading horizon Medco Holdings is expected to generate 0.73 times more return on investment than First Abacus. However, Medco Holdings is 1.38 times less risky than First Abacus. It trades about 0.1 of its potential returns per unit of risk. First Abacus Financial is currently generating about 0.03 per unit of risk. If you would invest  11.00  in Medco Holdings on September 23, 2024 and sell it today you would earn a total of  1.00  from holding Medco Holdings or generate 9.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	56.0%
Values	Daily Returns

Medco Holdings  vs.  First Abacus Financial

Medco Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Medco Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Medco Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Abacus Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Abacus Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, First Abacus exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medco Holdings and First Abacus

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

The idea behind Medco Holdings and First Abacus Financial 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.