Correlation Between Grocery Outlet and Tesco PLC

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

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

Diversification Opportunities for Grocery Outlet and Tesco PLC

0.05

Correlation Coefficient

Grocery Outlet  Tesco PLC

Significant diversification

The 3 months correlation between Grocery and Tesco is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Grocery Outlet Holding and Tesco PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesco PLC and Grocery Outlet 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 Grocery Outlet Holding 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 Grocery Outlet i.e., Grocery Outlet and Tesco PLC go up and down completely randomly.

Pair Corralation between Grocery Outlet and Tesco PLC

Allowing for the 90-day total investment horizon Grocery Outlet Holding is expected to under-perform the Tesco PLC. In addition to that, Grocery Outlet is 1.83 times more volatile than Tesco PLC. It trades about -0.01 of its total potential returns per unit of risk. Tesco PLC is currently generating about 0.0 per unit of volatility. If you would invest  450.00  in Tesco PLC on December 28, 2024 and sell it today you would lose (9.00) from holding Tesco PLC or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Grocery Outlet Holding  vs.  Tesco PLC

Grocery Outlet Holding

Risk-Adjusted Performance

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 very healthy basic indicators, Grocery Outlet is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Tesco PLC

Risk-Adjusted Performance

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 Grocery Outlet and Tesco PLC

The main advantage of trading using opposite Grocery Outlet and Tesco PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grocery Outlet 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 Grocery Outlet Holding 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.