Correlation Between Walgreens Boots and Target

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

Diversification Opportunities for Walgreens Boots and Target

-0.54

Correlation Coefficient

Walgreens Boots  Target

Excellent diversification

The 3 months correlation between Walgreens and Target is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Target go up and down completely randomly.

Pair Corralation between Walgreens Boots and Target

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to under-perform the Target. In addition to that, Walgreens Boots is 1.65 times more volatile than Target. It trades about -0.23 of its total potential returns per unit of risk. Target is currently generating about -0.3 per unit of volatility. If you would invest  16,970  in Target on February 6, 2024 and sell it today you would lose (1,199) from holding Target or give up 7.07% of portfolio value over 90 days.

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

Walgreens Boots Alliance  vs.  Target

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 June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Target

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Target may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Walgreens Boots and Target

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

The idea behind Walgreens Boots Alliance and Target 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..