Correlation Between Walgreens Boots and Rite Aid

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

Diversification Opportunities for Walgreens Boots and Rite Aid

0.64

Correlation Coefficient

Walgreens Boots  Rite Aid

Poor diversification

The 3 months correlation between Walgreens and Rite is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Rite Aid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rite Aid 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 Rite Aid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rite Aid has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Rite Aid go up and down completely randomly.

Pair Corralation between Walgreens Boots and Rite Aid

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to generate 0.46 times more return on investment than Rite Aid. However, Walgreens Boots Alliance is 2.18 times less risky than Rite Aid. It trades about -0.03 of its potential returns per unit of risk. Rite Aid is currently generating about -0.03 per unit of risk. If you would invest  2,037  in Walgreens Boots Alliance on January 26, 2024 and sell it today you would lose (256.00) from holding Walgreens Boots Alliance or give up 12.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	28.69%
Values	Daily Returns

Walgreens Boots Alliance  vs.  Rite Aid

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.

Rite Aid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rite Aid has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rite Aid is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Walgreens Boots and Rite Aid

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

The idea behind Walgreens Boots Alliance and Rite Aid 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.