Correlation Between Loblaw Companies and Metro

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

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

Diversification Opportunities for Loblaw Companies and Metro

-0.44

Correlation Coefficient

Loblaw Companies  Metro

Very good diversification

The 3 months correlation between Loblaw and Metro is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Loblaw Companies and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Inc and Loblaw Companies 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 Loblaw Companies are associated (or correlated) with Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of Loblaw Companies i.e., Loblaw Companies and Metro go up and down completely randomly.

Pair Corralation between Loblaw Companies and Metro

Assuming the 90 days trading horizon Loblaw Companies is expected to under-perform the Metro. But the preferred stock apears to be less risky and, when comparing its historical volatility, Loblaw Companies is 1.76 times less risky than Metro. The preferred stock trades about -0.1 of its potential returns per unit of risk. The Metro Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,422  in Metro Inc on August 31, 2024 and sell it today you would earn a total of  701.00  from holding Metro Inc or generate 8.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Loblaw Companies  vs.  Metro Inc

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.

Metro Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Metro may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Loblaw Companies and Metro

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

The idea behind Loblaw Companies and Metro Inc 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..