Correlation Between BJs Wholesale and Kroger

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

By analyzing existing cross correlation between BJs Wholesale Club and Kroger Company, you can compare the effects of market volatilities on BJs Wholesale and Kroger 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 BJs Wholesale with a short position of Kroger. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and Kroger.

Diversification Opportunities for BJs Wholesale and Kroger

0.85

Correlation Coefficient

BJs Wholesale  Kroger

Very poor diversification

The 3 months correlation between BJs and Kroger is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Kroger Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kroger Company and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with Kroger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kroger Company has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and Kroger go up and down completely randomly.

Pair Corralation between BJs Wholesale and Kroger

Allowing for the 90-day total investment horizon BJs Wholesale Club is expected to generate 1.69 times more return on investment than Kroger. However, BJs Wholesale is 1.69 times more volatile than Kroger Company. It trades about 0.11 of its potential returns per unit of risk. Kroger Company is currently generating about 0.06 per unit of risk. If you would invest  9,444  in BJs Wholesale Club on December 25, 2024 and sell it today you would earn a total of  1,504  from holding BJs Wholesale Club or generate 15.93% return on investment over 90 days.

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

BJs Wholesale Club  vs.  Kroger Company

BJs Wholesale Club

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward-looking indicators, BJs Wholesale revealed solid returns over the last few months and may actually be approaching a breakup point.

Kroger Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Kroger is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with BJs Wholesale and Kroger

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

The idea behind BJs Wholesale Club and Kroger Company 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.