Correlation Between Alliance Select and Medco Holdings

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

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

Diversification Opportunities for Alliance Select and Medco Holdings

0.6

Correlation Coefficient

Alliance Select  Medco Holdings

Poor diversification

The 3 months correlation between Alliance and Medco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Select Foods and Medco Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medco Holdings and Alliance Select 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 Alliance Select Foods are associated (or correlated) with Medco Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medco Holdings has no effect on the direction of Alliance Select i.e., Alliance Select and Medco Holdings go up and down completely randomly.

Pair Corralation between Alliance Select and Medco Holdings

Assuming the 90 days trading horizon Alliance Select Foods is expected to under-perform the Medco Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Alliance Select Foods is 2.72 times less risky than Medco Holdings. The stock trades about -0.02 of its potential returns per unit of risk. The Medco Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  14.00  in Medco Holdings on August 31, 2024 and sell it today you would lose (2.00) from holding Medco Holdings or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	83.5%
Values	Daily Returns

Alliance Select Foods  vs.  Medco Holdings

Alliance Select Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alliance Select Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Medco Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Alliance Select and Medco Holdings

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

The idea behind Alliance Select Foods and Medco Holdings 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.