Correlation Between Walgreens Boots and State Street

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

Diversification Opportunities for Walgreens Boots and State Street

-0.17

Correlation Coefficient

Walgreens Boots  State Street

Good diversification

The 3 months correlation between Walgreens and State is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and State Street Smallmid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Smallmid 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Smallmid has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and State Street go up and down completely randomly.

Pair Corralation between Walgreens Boots and State Street

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to under-perform the State Street. In addition to that, Walgreens Boots is 2.63 times more volatile than State Street Smallmid. It trades about -0.05 of its total potential returns per unit of risk. State Street Smallmid is currently generating about 0.05 per unit of volatility. If you would invest  22,753  in State Street Smallmid on October 13, 2024 and sell it today you would earn a total of  7,318  from holding State Street Smallmid or generate 32.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Walgreens Boots Alliance  vs.  State Street Smallmid

Walgreens Boots Alliance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 8 (%) 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.

State Street Smallmid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Smallmid has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walgreens Boots and State Street

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

The idea behind Walgreens Boots Alliance and State Street Smallmid 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.