Correlation Between Coles and Grocery Outlet

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

By analyzing existing cross correlation between Coles Group and Grocery Outlet Holding, you can compare the effects of market volatilities on Coles and Grocery Outlet 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 Coles with a short position of Grocery Outlet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coles and Grocery Outlet.

Diversification Opportunities for Coles and Grocery Outlet

0.08

Correlation Coefficient

Coles  Grocery Outlet

Significant diversification

The 3 months correlation between Coles and Grocery is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Coles Group and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding and Coles 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 Coles Group are associated (or correlated) with Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of Coles i.e., Coles and Grocery Outlet go up and down completely randomly.

Pair Corralation between Coles and Grocery Outlet

Assuming the 90 days horizon Coles Group is expected to generate 2.91 times more return on investment than Grocery Outlet. However, Coles is 2.91 times more volatile than Grocery Outlet Holding. It trades about 0.04 of its potential returns per unit of risk. Grocery Outlet Holding is currently generating about -0.04 per unit of risk. If you would invest  858.00  in Coles Group on September 30, 2024 and sell it today you would earn a total of  34.00  from holding Coles Group or generate 3.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	62.98%
Values	Daily Returns

Coles Group  vs.  Grocery Outlet Holding

Coles Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coles Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Coles is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Grocery Outlet Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grocery Outlet Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Coles and Grocery Outlet

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

The idea behind Coles Group and Grocery Outlet Holding 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.