Correlation Between Natural Grocers and Tesco PLC

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

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

Diversification Opportunities for Natural Grocers and Tesco PLC

-0.56

Correlation Coefficient

Natural Grocers  Tesco PLC

Excellent diversification

The 3 months correlation between Natural and Tesco is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Natural Grocers by and Tesco PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesco PLC and Natural Grocers 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 Natural Grocers by 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 Natural Grocers i.e., Natural Grocers and Tesco PLC go up and down completely randomly.

Pair Corralation between Natural Grocers and Tesco PLC

Given the investment horizon of 90 days Natural Grocers by is expected to generate 2.6 times more return on investment than Tesco PLC. However, Natural Grocers is 2.6 times more volatile than Tesco PLC. It trades about 0.12 of its potential returns per unit of risk. Tesco PLC is currently generating about 0.1 per unit of risk. If you would invest  874.00  in Natural Grocers by on August 31, 2024 and sell it today you would earn a total of  3,747  from holding Natural Grocers by or generate 428.72% return on investment over 90 days.

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

Natural Grocers by  vs.  Tesco PLC

Natural Grocers by

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Grocers by are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Natural Grocers exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tesco PLC

Risk-Adjusted Performance

0 of 100

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 fairly strong fundamental indicators, Tesco PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Natural Grocers and Tesco PLC

The main advantage of trading using opposite Natural Grocers and Tesco PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natural Grocers 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 Natural Grocers by 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.