Correlation Between Loblaw Companies and Koninklijke Ahold

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

By analyzing existing cross correlation between Loblaw Companies Limited and Koninklijke Ahold Delhaize, you can compare the effects of market volatilities on Loblaw Companies and Koninklijke Ahold 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 Koninklijke Ahold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loblaw Companies and Koninklijke Ahold.

Diversification Opportunities for Loblaw Companies and Koninklijke Ahold

0.75

Correlation Coefficient

Loblaw Companies  Koninklijke Ahold

Poor diversification

The 3 months correlation between Loblaw and Koninklijke is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Loblaw Companies Limited and Koninklijke Ahold Delhaize in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Ahold 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 Limited are associated (or correlated) with Koninklijke Ahold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Ahold has no effect on the direction of Loblaw Companies i.e., Loblaw Companies and Koninklijke Ahold go up and down completely randomly.

Pair Corralation between Loblaw Companies and Koninklijke Ahold

Assuming the 90 days horizon Loblaw Companies Limited is expected to generate 1.38 times more return on investment than Koninklijke Ahold. However, Loblaw Companies is 1.38 times more volatile than Koninklijke Ahold Delhaize. It trades about 0.07 of its potential returns per unit of risk. Koninklijke Ahold Delhaize is currently generating about 0.09 per unit of risk. If you would invest  11,649  in Loblaw Companies Limited on September 5, 2024 and sell it today you would earn a total of  751.00  from holding Loblaw Companies Limited or generate 6.45% return on investment over 90 days.

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

Loblaw Companies Limited  vs.  Koninklijke Ahold Delhaize

Loblaw Companies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Loblaw Companies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Koninklijke Ahold

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke Ahold Delhaize are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Koninklijke Ahold is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Loblaw Companies and Koninklijke Ahold

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

The idea behind Loblaw Companies Limited and Koninklijke Ahold Delhaize 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.