Correlation Between Pool and Target
Can any of the company-specific risk be diversified away by investing in both Pool 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 Pool and Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pool Corporation and Target, you can compare the effects of market volatilities on Pool 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 Pool with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pool and Target.
Diversification Opportunities for Pool and Target
Very weak diversification
The 3 months correlation between Pool and Target is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Pool 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 Pool Corporation 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 Pool i.e., Pool and Target go up and down completely randomly.
Pair Corralation between Pool and Target
Given the investment horizon of 90 days Pool Corporation is expected to under-perform the Target. In addition to that, Pool is 1.49 times more volatile than Target. It trades about -0.3 of its total potential returns per unit of risk. Target is currently generating about -0.44 per unit of volatility. If you would invest 17,782 in Target on February 1, 2024 and sell it today you would lose (1,684) from holding Target or give up 9.47% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Pool Corp. vs. Target
Performance |
Timeline |
Pool |
Target |
Pool and Target Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Pool and Target
The main advantage of trading using opposite Pool and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pool 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.Pool vs. The Chefs Warehouse | Pool vs. G Willi Food International | Pool vs. SpartanNash Co | Pool vs. Calavo Growers |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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