Correlation Between McKesson and Visa

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

By analyzing existing cross correlation between McKesson and Visa Class A, you can compare the effects of market volatilities on McKesson and Visa 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 Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of McKesson and Visa.

Diversification Opportunities for McKesson and Visa

0.65

Correlation Coefficient

McKesson  Visa

Poor diversification

The 3 months correlation between McKesson and Visa is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding McKesson and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of McKesson i.e., McKesson and Visa go up and down completely randomly.

Pair Corralation between McKesson and Visa

Considering the 90-day investment horizon McKesson is expected to generate 0.96 times more return on investment than Visa. However, McKesson is 1.05 times less risky than Visa. It trades about -0.16 of its potential returns per unit of risk. Visa Class A is currently generating about -0.3 per unit of risk. If you would invest  53,434  in McKesson on January 19, 2024 and sell it today you would lose (1,467) from holding McKesson or give up 2.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

McKesson  vs.  Visa Class A

McKesson

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 10 (%) 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 May 2024.

Visa Class A

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with McKesson and Visa

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

The idea behind McKesson and Visa Class A 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.