Correlation Between Walgreens Boots and SP 500

Can any of the company-specific risk be diversified away by investing in both Walgreens Boots and SP 500 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 SP 500 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 SP 500 Financials, you can compare the effects of market volatilities on Walgreens Boots and SP 500 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 SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walgreens Boots and SP 500.

Diversification Opportunities for Walgreens Boots and SP 500

0.08

Correlation Coefficient

Walgreens Boots  SP 500

Significant diversification

The 3 months correlation between Walgreens and SPSY is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and SP 500 Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Financials 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 SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Financials has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and SP 500 go up and down completely randomly.

Pair Corralation between Walgreens Boots and SP 500

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to under-perform the SP 500. In addition to that, Walgreens Boots is 3.76 times more volatile than SP 500 Financials. It trades about -0.09 of its total potential returns per unit of risk. SP 500 Financials is currently generating about 0.12 per unit of volatility. If you would invest  62,843  in SP 500 Financials on October 1, 2024 and sell it today you would earn a total of  18,297  from holding SP 500 Financials or generate 29.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Walgreens Boots Alliance  vs.  SP 500 Financials

Pair Trading with Walgreens Boots and SP 500

The main advantage of trading using opposite Walgreens Boots and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walgreens Boots position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.

The idea behind Walgreens Boots Alliance and SP 500 Financials 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .