Correlation Between McKesson and Cardinal Health

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

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

Diversification Opportunities for McKesson and Cardinal Health

-0.14

Correlation Coefficient

McKesson  Cardinal Health

Good diversification

The 3 months correlation between McKesson and Cardinal is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding McKesson and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health and McKesson 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 McKesson are associated (or correlated) with Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of McKesson i.e., McKesson and Cardinal Health go up and down completely randomly.

Pair Corralation between McKesson and Cardinal Health

Considering the 90-day investment horizon McKesson is expected to generate 1.13 times less return on investment than Cardinal Health. But when comparing it to its historical volatility, McKesson is 1.12 times less risky than Cardinal Health. It trades about 0.09 of its potential returns per unit of risk. Cardinal Health is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,487  in Cardinal Health on February 16, 2024 and sell it today you would earn a total of  4,224  from holding Cardinal Health or generate 76.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

McKesson  vs.  Cardinal Health

McKesson

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, McKesson may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Cardinal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cardinal Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Cardinal Health is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with McKesson and Cardinal Health

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

The idea behind McKesson and Cardinal Health 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.