Correlation Between GM and Walgreens Boots
Can any of the company-specific risk be diversified away by investing in both GM and Walgreens Boots 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 GM and Walgreens Boots into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Walgreens Boots Alliance, you can compare the effects of market volatilities on GM and Walgreens Boots 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 GM with a short position of Walgreens Boots. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Walgreens Boots.
Diversification Opportunities for GM and Walgreens Boots
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and Walgreens is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Walgreens Boots Alliance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walgreens Boots Alliance and GM 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 General Motors are associated (or correlated) with Walgreens Boots. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walgreens Boots Alliance has no effect on the direction of GM i.e., GM and Walgreens Boots go up and down completely randomly.
Pair Corralation between GM and Walgreens Boots
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.67 times more return on investment than Walgreens Boots. However, General Motors is 1.49 times less risky than Walgreens Boots. It trades about 0.11 of its potential returns per unit of risk. Walgreens Boots Alliance is currently generating about -0.1 per unit of risk. If you would invest 3,348 in General Motors on September 3, 2024 and sell it today you would earn a total of 2,211 from holding General Motors or generate 66.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.41% |
| Values | Daily Returns |
General Motors vs. Walgreens Boots Alliance
Performance |
| Timeline |
| General Motors |
| Walgreens Boots Alliance |
GM and Walgreens Boots Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Walgreens Boots
The main advantage of trading using opposite GM and Walgreens Boots positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Walgreens Boots 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 Walgreens Boots will offset losses from the drop in Walgreens Boots' long position.The idea behind General Motors and Walgreens Boots Alliance 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.| Walgreens Boots vs. Apple Inc | Walgreens Boots vs. Apple Inc | Walgreens Boots vs. Apple Inc | Walgreens Boots vs. Apple Inc |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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