Correlation Between Applied Materials and McKesson

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

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

Diversification Opportunities for Applied Materials and McKesson

-0.69

Correlation Coefficient

Applied Materials  McKesson

Excellent diversification

The 3 months correlation between Applied and McKesson is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials and McKesson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McKesson and Applied Materials 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 Applied Materials are associated (or correlated) with McKesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McKesson has no effect on the direction of Applied Materials i.e., Applied Materials and McKesson go up and down completely randomly.

Pair Corralation between Applied Materials and McKesson

Assuming the 90 days trading horizon Applied Materials is expected to under-perform the McKesson. In addition to that, Applied Materials is 1.15 times more volatile than McKesson. It trades about -0.08 of its total potential returns per unit of risk. McKesson is currently generating about 0.15 per unit of volatility. If you would invest  976,194  in McKesson on September 25, 2024 and sell it today you would earn a total of  223,374  from holding McKesson or generate 22.88% return on investment over 90 days.

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

Applied Materials  vs.  McKesson

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

McKesson

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, McKesson showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Materials and McKesson

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

The idea behind Applied Materials and McKesson 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 Anywhere module to track or share privately all of your investments from the convenience of any device.