Correlation Between Walgreens Boots and Innovator

Can any of the company-specific risk be diversified away by investing in both Walgreens Boots and Innovator 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 Innovator 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 Innovator SP 500, you can compare the effects of market volatilities on Walgreens Boots and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walgreens Boots and Innovator.

Diversification Opportunities for Walgreens Boots and Innovator

0.16

Correlation Coefficient

Walgreens Boots  Innovator

Average diversification

The 3 months correlation between Walgreens and Innovator is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Innovator go up and down completely randomly.

Pair Corralation between Walgreens Boots and Innovator

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to under-perform the Innovator. In addition to that, Walgreens Boots is 9.33 times more volatile than Innovator SP 500. It trades about -0.07 of its total potential returns per unit of risk. Innovator SP 500 is currently generating about 0.15 per unit of volatility. If you would invest  2,882  in Innovator SP 500 on September 12, 2024 and sell it today you would earn a total of  523.00  from holding Innovator SP 500 or generate 18.15% return on investment over 90 days.

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

Walgreens Boots Alliance  vs.  Innovator SP 500

Walgreens Boots Alliance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 7 (%) 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.

Innovator SP 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Innovator is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Walgreens Boots and Innovator

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

The idea behind Walgreens Boots Alliance and Innovator SP 500 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.