Correlation Between McKesson and FibraHotel

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

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

Diversification Opportunities for McKesson and FibraHotel

0.69

Correlation Coefficient

McKesson  FibraHotel

Poor diversification

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

Pair Corralation between McKesson and FibraHotel

Assuming the 90 days trading horizon McKesson is expected to generate 0.91 times more return on investment than FibraHotel. However, McKesson is 1.09 times less risky than FibraHotel. It trades about 0.22 of its potential returns per unit of risk. FibraHotel is currently generating about 0.18 per unit of risk. If you would invest  1,017,746  in McKesson on September 25, 2024 and sell it today you would earn a total of  181,822  from holding McKesson or generate 17.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

McKesson  vs.  FibraHotel

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.

FibraHotel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FibraHotel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, FibraHotel sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with McKesson and FibraHotel

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

The idea behind McKesson and FibraHotel 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.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.