Correlation Between Walgreens Boots and Pacific Smiles

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

Diversification Opportunities for Walgreens Boots and Pacific Smiles

0.16

Correlation Coefficient

Walgreens Boots  Pacific Smiles

Average diversification

The 3 months correlation between Walgreens and Pacific is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Pacific Smiles Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Smiles Group 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 Pacific Smiles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Smiles Group has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Pacific Smiles go up and down completely randomly.

Pair Corralation between Walgreens Boots and Pacific Smiles

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to generate 18.89 times more return on investment than Pacific Smiles. However, Walgreens Boots is 18.89 times more volatile than Pacific Smiles Group. It trades about 0.16 of its potential returns per unit of risk. Pacific Smiles Group is currently generating about 0.0 per unit of risk. If you would invest  830.00  in Walgreens Boots Alliance on September 22, 2024 and sell it today you would earn a total of  125.00  from holding Walgreens Boots Alliance or generate 15.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

Walgreens Boots Alliance  vs.  Pacific Smiles Group

Walgreens Boots Alliance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Walgreens Boots sustained solid returns over the last few months and may actually be approaching a breakup point.

Pacific Smiles Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Smiles Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Pacific Smiles may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Walgreens Boots and Pacific Smiles

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

The idea behind Walgreens Boots Alliance and Pacific Smiles Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.