Correlation Between Patterson Companies and Cardinal Health

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

By analyzing existing cross correlation between Patterson Companies and Cardinal Health, you can compare the effects of market volatilities on Patterson Companies and Cardinal Health 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 Patterson Companies with a short position of Cardinal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Patterson Companies and Cardinal Health.

Diversification Opportunities for Patterson Companies and Cardinal Health

0.33

Correlation Coefficient

Patterson Companies  Cardinal Health

Weak diversification

The 3 months correlation between Patterson and Cardinal is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Patterson Companies and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health and Patterson Companies 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 Patterson Companies are associated (or correlated) with Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of Patterson Companies i.e., Patterson Companies and Cardinal Health go up and down completely randomly.

Pair Corralation between Patterson Companies and Cardinal Health

Assuming the 90 days horizon Patterson Companies is expected to generate 2.54 times more return on investment than Cardinal Health. However, Patterson Companies is 2.54 times more volatile than Cardinal Health. It trades about 0.16 of its potential returns per unit of risk. Cardinal Health is currently generating about 0.11 per unit of risk. If you would invest  1,904  in Patterson Companies on September 23, 2024 and sell it today you would earn a total of  1,036  from holding Patterson Companies or generate 54.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Patterson Companies  vs.  Cardinal Health

Patterson Companies

Risk-Adjusted Performance

12 of 100

Good

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

Cardinal Health

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Patterson Companies and Cardinal Health

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

The idea behind Patterson Companies and Cardinal Health 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.