Correlation Between McKesson and Applied Materials
Can any of the company-specific risk be diversified away by investing in both McKesson and Applied Materials 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 McKesson and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McKesson and Applied Materials, you can compare the effects of market volatilities on McKesson and Applied Materials 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 McKesson with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of McKesson and Applied Materials.
Diversification Opportunities for McKesson and Applied Materials
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between McKesson and Applied is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding McKesson and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and McKesson 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 McKesson are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of McKesson i.e., McKesson and Applied Materials go up and down completely randomly.
Pair Corralation between McKesson and Applied Materials
Assuming the 90 days trading horizon McKesson is expected to generate 0.87 times more return on investment than Applied Materials. However, McKesson is 1.15 times less risky than Applied Materials. It trades about 0.15 of its potential returns per unit of risk. Applied Materials is currently generating about -0.08 per unit of risk. 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 |
McKesson vs. Applied Materials
Performance |
Timeline |
McKesson |
Applied Materials |
McKesson and Applied Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with McKesson and Applied Materials
The main advantage of trading using opposite McKesson and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McKesson position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.McKesson vs. Applied Materials | McKesson vs. FibraHotel | McKesson vs. Taiwan Semiconductor Manufacturing | McKesson vs. Southern Copper |
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Check out your portfolio center.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.
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