Correlation Between Walgreens Boots and Southern Rubber

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

Diversification Opportunities for Walgreens Boots and Southern Rubber

0.25

Correlation Coefficient

Walgreens Boots  Southern Rubber

Modest diversification

The 3 months correlation between Walgreens and Southern is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Southern Rubber Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Rubber Industry 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 Southern Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Rubber Industry has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Southern Rubber go up and down completely randomly.

Pair Corralation between Walgreens Boots and Southern Rubber

Considering the 90-day investment horizon Walgreens Boots is expected to generate 1.62 times less return on investment than Southern Rubber. In addition to that, Walgreens Boots is 1.79 times more volatile than Southern Rubber Industry. It trades about 0.06 of its total potential returns per unit of risk. Southern Rubber Industry is currently generating about 0.17 per unit of volatility. If you would invest  1,230,000  in Southern Rubber Industry on September 30, 2024 and sell it today you would earn a total of  330,000  from holding Southern Rubber Industry or generate 26.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.97%
Values	Daily Returns

Walgreens Boots Alliance  vs.  Southern Rubber Industry

Walgreens Boots Alliance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Walgreens Boots sustained solid returns over the last few months and may actually be approaching a breakup point.

Southern Rubber Industry

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Rubber Industry are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Southern Rubber displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walgreens Boots and Southern Rubber

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

The idea behind Walgreens Boots Alliance and Southern Rubber Industry 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.