Correlation Between Exchange Income and Loblaw Companies

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

By analyzing existing cross correlation between Exchange Income and Loblaw Companies Limited, you can compare the effects of market volatilities on Exchange Income and Loblaw Companies 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 Exchange Income with a short position of Loblaw Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exchange Income and Loblaw Companies.

Diversification Opportunities for Exchange Income and Loblaw Companies

0.47

Correlation Coefficient

Exchange Income  Loblaw Companies

Very weak diversification

The 3 months correlation between Exchange and Loblaw is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Exchange Income and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and Exchange Income 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 Exchange Income are associated (or correlated) with Loblaw Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loblaw Companies has no effect on the direction of Exchange Income i.e., Exchange Income and Loblaw Companies go up and down completely randomly.

Pair Corralation between Exchange Income and Loblaw Companies

Assuming the 90 days trading horizon Exchange Income is expected to generate 1.34 times less return on investment than Loblaw Companies. In addition to that, Exchange Income is 1.13 times more volatile than Loblaw Companies Limited. It trades about 0.18 of its total potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.28 per unit of volatility. If you would invest  18,147  in Loblaw Companies Limited on September 29, 2024 and sell it today you would earn a total of  967.00  from holding Loblaw Companies Limited or generate 5.33% return on investment over 90 days.

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

Exchange Income  vs.  Loblaw Companies Limited

Exchange Income

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Income are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Exchange Income displayed solid returns over the last few months and may actually be approaching a breakup point.

Loblaw Companies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Loblaw Companies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Exchange Income and Loblaw Companies

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

The idea behind Exchange Income and Loblaw Companies Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.