Correlation Between Cardinal Health and PACCAR

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

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

Diversification Opportunities for Cardinal Health and PACCAR

0.89

Correlation Coefficient

Cardinal Health  PACCAR

Very poor diversification

The 3 months correlation between Cardinal and PACCAR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc and Cardinal Health 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 Cardinal Health are associated (or correlated) with PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Cardinal Health i.e., Cardinal Health and PACCAR go up and down completely randomly.

Pair Corralation between Cardinal Health and PACCAR

Considering the 90-day investment horizon Cardinal Health is expected to generate 1.54 times less return on investment than PACCAR. But when comparing it to its historical volatility, Cardinal Health is 1.15 times less risky than PACCAR. It trades about 0.07 of its potential returns per unit of risk. PACCAR Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,579  in PACCAR Inc on September 23, 2024 and sell it today you would earn a total of  953.00  from holding PACCAR Inc or generate 9.95% return on investment over 90 days.

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

Cardinal Health  vs.  PACCAR Inc

Cardinal Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PACCAR Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cardinal Health and PACCAR

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

The idea behind Cardinal Health and PACCAR Inc 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.