Correlation Between Phillips and Target
Can any of the company-specific risk be diversified away by investing in both Phillips 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 Phillips and Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Phillips 66 and Target, you can compare the effects of market volatilities on Phillips 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 Phillips with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phillips and Target.
Diversification Opportunities for Phillips and Target
Very poor diversification
The 3 months correlation between Phillips and Target is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Phillips 66 and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Phillips 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 Phillips 66 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 Phillips i.e., Phillips and Target go up and down completely randomly.
Pair Corralation between Phillips and Target
Considering the 90-day investment horizon Phillips 66 is expected to under-perform the Target. In addition to that, Phillips is 1.27 times more volatile than Target. It trades about -0.09 of its total potential returns per unit of risk. Target is currently generating about -0.08 per unit of volatility. If you would invest 17,046 in Target on January 20, 2024 and sell it today you would lose (388.00) from holding Target or give up 2.28% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Phillips 66 vs. Target
Performance |
| Timeline |
| Phillips 66 |
| Target |
Phillips and Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Phillips and Target
The main advantage of trading using opposite Phillips and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Phillips 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 Phillips 66 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.| Target vs. Aquagold International | Target vs. Morningstar Unconstrained Allocation | Target vs. Thrivent High Yield | Target vs. Via Renewables |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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