Correlation Between Empire Company and Loblaw Companies

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

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

Diversification Opportunities for Empire Company and Loblaw Companies

-0.62

Correlation Coefficient

Empire Company  Loblaw Companies

Excellent diversification

The 3 months correlation between Empire and Loblaw is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Empire Company Limited and Loblaw Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and Empire Company 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 Empire Company Limited 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 Empire Company i.e., Empire Company and Loblaw Companies go up and down completely randomly.

Pair Corralation between Empire Company and Loblaw Companies

Assuming the 90 days trading horizon Empire Company Limited is expected to generate 2.3 times more return on investment than Loblaw Companies. However, Empire Company is 2.3 times more volatile than Loblaw Companies. It trades about 0.15 of its potential returns per unit of risk. Loblaw Companies is currently generating about -0.09 per unit of risk. If you would invest  3,771  in Empire Company Limited on September 2, 2024 and sell it today you would earn a total of  427.00  from holding Empire Company Limited or generate 11.32% return on investment over 90 days.

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

Empire Company Limited  vs.  Loblaw Companies

Empire Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Company Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Empire Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Loblaw Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loblaw Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Loblaw Companies is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Empire Company and Loblaw Companies

The main advantage of trading using opposite Empire Company and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empire Company 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 Empire Company Limited and Loblaw Companies 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.