Correlation Between Dingdong ADR and Tesco PLC

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

By analyzing existing cross correlation between Dingdong ADR and Tesco PLC, you can compare the effects of market volatilities on Dingdong ADR and Tesco PLC 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 Dingdong ADR with a short position of Tesco PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dingdong ADR and Tesco PLC.

Diversification Opportunities for Dingdong ADR and Tesco PLC

0.22

Correlation Coefficient

Dingdong ADR  Tesco PLC

Modest diversification

The 3 months correlation between Dingdong and Tesco is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dingdong ADR and Tesco PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesco PLC and Dingdong ADR 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 Dingdong ADR are associated (or correlated) with Tesco PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesco PLC has no effect on the direction of Dingdong ADR i.e., Dingdong ADR and Tesco PLC go up and down completely randomly.

Pair Corralation between Dingdong ADR and Tesco PLC

Considering the 90-day investment horizon Dingdong ADR is expected to under-perform the Tesco PLC. In addition to that, Dingdong ADR is 1.44 times more volatile than Tesco PLC. It trades about -0.08 of its total potential returns per unit of risk. Tesco PLC is currently generating about 0.02 per unit of volatility. If you would invest  469.00  in Tesco PLC on November 30, 2024 and sell it today you would earn a total of  6.00  from holding Tesco PLC or generate 1.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Dingdong ADR  vs.  Tesco PLC

Dingdong ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dingdong ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Tesco PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tesco PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Tesco PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dingdong ADR and Tesco PLC

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

The idea behind Dingdong ADR and Tesco PLC 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .