Correlation Between Phillips and ScanSource

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

By analyzing existing cross correlation between Phillips 66 and ScanSource, you can compare the effects of market volatilities on Phillips and ScanSource 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 Phillips with a short position of ScanSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phillips and ScanSource.

Diversification Opportunities for Phillips and ScanSource

0.31

Correlation Coefficient

Phillips  ScanSource

Weak diversification

The 3 months correlation between Phillips and ScanSource is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Phillips 66 and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and Phillips 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 Phillips 66 are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of Phillips i.e., Phillips and ScanSource go up and down completely randomly.

Pair Corralation between Phillips and ScanSource

Assuming the 90 days horizon Phillips is expected to generate 2.52 times less return on investment than ScanSource. But when comparing it to its historical volatility, Phillips 66 is 1.18 times less risky than ScanSource. It trades about 0.03 of its potential returns per unit of risk. ScanSource is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,740  in ScanSource on September 24, 2024 and sell it today you would earn a total of  1,960  from holding ScanSource or generate 71.53% return on investment over 90 days.

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

Phillips 66  vs.  ScanSource

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ScanSource

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Phillips and ScanSource

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

The idea behind Phillips 66 and ScanSource 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.