Correlation Between ATT and Target
Can any of the company-specific risk be diversified away by investing in both ATT 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 ATT and Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ATT Inc and Target, you can compare the effects of market volatilities on ATT 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 ATT with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and Target.
Diversification Opportunities for ATT and Target
Significant diversification
The 3 months correlation between ATT and Target is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and ATT 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 ATT Inc 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 ATT i.e., ATT and Target go up and down completely randomly.
Pair Corralation between ATT and Target
Taking into account the 90-day investment horizon ATT Inc is expected to generate 0.95 times more return on investment than Target. However, ATT Inc is 1.05 times less risky than Target. It trades about -0.02 of its potential returns per unit of risk. Target is currently generating about -0.18 per unit of risk. If you would invest 1,690 in ATT Inc on January 26, 2024 and sell it today you would lose (9.00) from holding ATT Inc or give up 0.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ATT Inc vs. Target
Performance |
| Timeline |
| ATT Inc |
| Target |
ATT and Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ATT and Target
The main advantage of trading using opposite ATT and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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. Costco Wholesale Corp | Target vs. BJs Wholesale Club | Target vs. Dollar Tree | Target vs. Dollar General |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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