Correlation Between Krispy Kreme and Tesco PLC

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

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

Diversification Opportunities for Krispy Kreme and Tesco PLC

0.21

Correlation Coefficient

Krispy Kreme  Tesco PLC

Modest diversification

The 3 months correlation between Krispy and Tesco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Krispy Kreme and Tesco PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesco PLC and Krispy Kreme 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 Krispy Kreme 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 Krispy Kreme i.e., Krispy Kreme and Tesco PLC go up and down completely randomly.

Pair Corralation between Krispy Kreme and Tesco PLC

Given the investment horizon of 90 days Krispy Kreme is expected to under-perform the Tesco PLC. But the stock apears to be less risky and, when comparing its historical volatility, Krispy Kreme is 1.09 times less risky than Tesco PLC. The stock trades about -0.01 of its potential returns per unit of risk. The Tesco PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  466.00  in Tesco PLC on September 1, 2024 and sell it today you would lose (3.00) from holding Tesco PLC or give up 0.64% of portfolio value over 90 days.

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

Krispy Kreme  vs.  Tesco PLC

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Krispy Kreme is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Tesco PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tesco PLC has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Krispy Kreme and Tesco PLC

The main advantage of trading using opposite Krispy Kreme and Tesco PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Krispy Kreme 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 Krispy Kreme 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.