Correlation Between Walgreens Boots and Defense Metals

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

By analyzing existing cross correlation between Walgreens Boots Alliance and Defense Metals Corp, you can compare the effects of market volatilities on Walgreens Boots and Defense Metals 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 Walgreens Boots with a short position of Defense Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walgreens Boots and Defense Metals.

Diversification Opportunities for Walgreens Boots and Defense Metals

0.41

Correlation Coefficient

Walgreens Boots  Defense Metals

Very weak diversification

The 3 months correlation between Walgreens and Defense is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Defense Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense Metals Corp and Walgreens Boots 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 Walgreens Boots Alliance are associated (or correlated) with Defense Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense Metals Corp has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Defense Metals go up and down completely randomly.

Pair Corralation between Walgreens Boots and Defense Metals

Considering the 90-day investment horizon Walgreens Boots is expected to generate 2.58 times less return on investment than Defense Metals. But when comparing it to its historical volatility, Walgreens Boots Alliance is 1.35 times less risky than Defense Metals. It trades about 0.08 of its potential returns per unit of risk. Defense Metals Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  7.20  in Defense Metals Corp on December 2, 2024 and sell it today you would earn a total of  4.80  from holding Defense Metals Corp or generate 66.67% return on investment over 90 days.

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

Walgreens Boots Alliance  vs.  Defense Metals Corp

Walgreens Boots Alliance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Walgreens Boots sustained solid returns over the last few months and may actually be approaching a breakup point.

Defense Metals Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Defense Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walgreens Boots and Defense Metals

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

The idea behind Walgreens Boots Alliance and Defense Metals Corp 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.