Correlation Between Patterson Companies and McKesson

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

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

Diversification Opportunities for Patterson Companies and McKesson

0.93

Correlation Coefficient

Patterson Companies  McKesson

Almost no diversification

The 3 months correlation between Patterson and McKesson is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Patterson Companies and McKesson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McKesson 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 McKesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McKesson has no effect on the direction of Patterson Companies i.e., Patterson Companies and McKesson go up and down completely randomly.

Pair Corralation between Patterson Companies and McKesson

Given the investment horizon of 90 days Patterson Companies is expected to generate 13.98 times less return on investment than McKesson. But when comparing it to its historical volatility, Patterson Companies is 13.19 times less risky than McKesson. It trades about 0.21 of its potential returns per unit of risk. McKesson is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  57,012  in McKesson on December 30, 2024 and sell it today you would earn a total of  9,794  from holding McKesson or generate 17.18% return on investment over 90 days.

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

Patterson Companies  vs.  McKesson

Patterson Companies

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Patterson Companies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Patterson Companies is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

McKesson

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 17 (%) 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.

Pair Trading with Patterson Companies and McKesson

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

The idea behind Patterson Companies and McKesson 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.