Correlation Between Walgreens Boots and Plumb Balanced

Can any of the company-specific risk be diversified away by investing in both Walgreens Boots and Plumb Balanced 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 Plumb Balanced 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 Plumb Balanced, you can compare the effects of market volatilities on Walgreens Boots and Plumb Balanced 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 Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walgreens Boots and Plumb Balanced.

Diversification Opportunities for Walgreens Boots and Plumb Balanced

-0.26

Correlation Coefficient

Walgreens Boots  Plumb Balanced

Very good diversification

The 3 months correlation between Walgreens and Plumb is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced 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 Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Plumb Balanced go up and down completely randomly.

Pair Corralation between Walgreens Boots and Plumb Balanced

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to generate 4.33 times more return on investment than Plumb Balanced. However, Walgreens Boots is 4.33 times more volatile than Plumb Balanced. It trades about 0.09 of its potential returns per unit of risk. Plumb Balanced is currently generating about -0.08 per unit of risk. If you would invest  874.00  in Walgreens Boots Alliance on December 4, 2024 and sell it today you would earn a total of  209.50  from holding Walgreens Boots Alliance or generate 23.97% return on investment over 90 days.

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

Walgreens Boots Alliance  vs.  Plumb Balanced

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 6 (%) 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.

Plumb Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plumb Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Walgreens Boots and Plumb Balanced

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

The idea behind Walgreens Boots Alliance and Plumb Balanced 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.