Correlation Between J Sainsbury and Tesco PLC

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

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

Diversification Opportunities for J Sainsbury and Tesco PLC

0.41

Correlation Coefficient

J Sainsbury  Tesco PLC

Very weak diversification

The 3 months correlation between JSNSF and Tesco is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding J Sainsbury plc and Tesco PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesco PLC and J Sainsbury 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 J Sainsbury plc 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 J Sainsbury i.e., J Sainsbury and Tesco PLC go up and down completely randomly.

Pair Corralation between J Sainsbury and Tesco PLC

Assuming the 90 days horizon J Sainsbury plc is expected to generate 3.27 times more return on investment than Tesco PLC. However, J Sainsbury is 3.27 times more volatile than Tesco PLC. It trades about 0.03 of its potential returns per unit of risk. Tesco PLC is currently generating about -0.07 per unit of risk. If you would invest  342.00  in J Sainsbury plc on December 29, 2024 and sell it today you would lose (2.00) from holding J Sainsbury plc or give up 0.58% of portfolio value over 90 days.

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

J Sainsbury plc  vs.  Tesco PLC

J Sainsbury plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in J Sainsbury plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, J Sainsbury may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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. In spite of latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with J Sainsbury and Tesco PLC

The main advantage of trading using opposite J Sainsbury and Tesco PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if J Sainsbury 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 J Sainsbury plc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.