Correlation Between Kroger and TESCO PLC

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

By analyzing existing cross correlation between The Kroger Co and TESCO PLC ADR1, you can compare the effects of market volatilities on Kroger 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 Kroger with a short position of TESCO PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kroger and TESCO PLC.

Diversification Opportunities for Kroger and TESCO PLC

0.45

Correlation Coefficient

Kroger  TESCO PLC

Very weak diversification

The 3 months correlation between Kroger and TESCO is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Kroger Co and TESCO PLC ADR1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TESCO PLC ADR1 and Kroger 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 The Kroger Co 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 ADR1 has no effect on the direction of Kroger i.e., Kroger and TESCO PLC go up and down completely randomly.

Pair Corralation between Kroger and TESCO PLC

Assuming the 90 days horizon Kroger is expected to generate 1.19 times less return on investment than TESCO PLC. In addition to that, Kroger is 1.33 times more volatile than TESCO PLC ADR1. It trades about 0.07 of its total potential returns per unit of risk. TESCO PLC ADR1 is currently generating about 0.1 per unit of volatility. If you would invest  1,240  in TESCO PLC ADR1 on September 24, 2024 and sell it today you would earn a total of  40.00  from holding TESCO PLC ADR1 or generate 3.23% return on investment over 90 days.

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

The Kroger Co  vs.  TESCO PLC ADR1

The Kroger

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Kroger Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kroger reported solid returns over the last few months and may actually be approaching a breakup point.

TESCO PLC ADR1

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TESCO PLC ADR1 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic 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 Kroger and TESCO PLC

The main advantage of trading using opposite Kroger and TESCO PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kroger 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 The Kroger Co and TESCO PLC ADR1 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.