Correlation Between Target and Best Buy
Can any of the company-specific risk be diversified away by investing in both Target and Best Buy 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 Target and Best Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target and Best Buy Co, you can compare the effects of market volatilities on Target and Best Buy 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 Target with a short position of Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target and Best Buy.
Diversification Opportunities for Target and Best Buy
Very poor diversification
The 3 months correlation between Target and Best is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Target and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and Target 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 Target are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Target i.e., Target and Best Buy go up and down completely randomly.
Pair Corralation between Target and Best Buy
Considering the 90-day investment horizon Target is expected to generate 1.21 times more return on investment than Best Buy. However, Target is 1.21 times more volatile than Best Buy Co. It trades about 0.14 of its potential returns per unit of risk. Best Buy Co is currently generating about 0.02 per unit of risk. If you would invest 14,113 in Target on January 25, 2024 and sell it today you would earn a total of 2,538 from holding Target or generate 17.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target vs. Best Buy Co
Performance |
| Timeline |
| Target |
| Best Buy |
Target and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target and Best Buy
The main advantage of trading using opposite Target and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.| Target vs. Big Lots | Target vs. Aquagold International | Target vs. Thrivent High Yield | Target vs. Morningstar Unconstrained Allocation |
| Best Buy vs. Target | Best Buy vs. Walmart | Best Buy vs. Aquagold International | Best Buy vs. Thrivent High Yield |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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