Correlation Between Kroger and Walgreens Boots

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

By analyzing existing cross correlation between Kroger Company and Walgreens Boots Alliance, you can compare the effects of market volatilities on Kroger 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 Kroger with a short position of Walgreens Boots. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kroger and Walgreens Boots.

Diversification Opportunities for Kroger and Walgreens Boots

-0.74

Correlation Coefficient

Kroger  Walgreens Boots

Pay attention - limited upside

The 3 months correlation between Kroger and Walgreens is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Kroger Company 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 Kroger 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 Kroger Company 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 Kroger i.e., Kroger and Walgreens Boots go up and down completely randomly.

Pair Corralation between Kroger and Walgreens Boots

Allowing for the 90-day total investment horizon Kroger Company is expected to generate 0.45 times more return on investment than Walgreens Boots. However, Kroger Company is 2.25 times less risky than Walgreens Boots. It trades about -0.1 of its potential returns per unit of risk. Walgreens Boots Alliance is currently generating about -0.32 per unit of risk. If you would invest  5,713  in Kroger Company on January 28, 2024 and sell it today you would lose (164.00) from holding Kroger Company or give up 2.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Kroger Company  vs.  Walgreens Boots Alliance

Kroger Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Kroger reported solid returns over the last few months and may actually be approaching a breakup point.

Walgreens Boots Alliance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Walgreens Boots Alliance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Kroger and Walgreens Boots

The main advantage of trading using opposite Kroger and Walgreens Boots positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kroger 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 Kroger Company 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.