Correlation Between Nutrien and Loblaw Companies

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

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

Diversification Opportunities for Nutrien and Loblaw Companies

0.26

Correlation Coefficient

Nutrien  Loblaw Companies

Modest diversification

The 3 months correlation between Nutrien and Loblaw is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nutrien and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and Nutrien 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 Nutrien are associated (or correlated) with Loblaw Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loblaw Companies has no effect on the direction of Nutrien i.e., Nutrien and Loblaw Companies go up and down completely randomly.

Pair Corralation between Nutrien and Loblaw Companies

Assuming the 90 days trading horizon Nutrien is expected to generate 1.17 times more return on investment than Loblaw Companies. However, Nutrien is 1.17 times more volatile than Loblaw Companies Limited. It trades about 0.06 of its potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.06 per unit of risk. If you would invest  6,240  in Nutrien on September 3, 2024 and sell it today you would earn a total of  300.00  from holding Nutrien or generate 4.81% return on investment over 90 days.

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

Nutrien  vs.  Loblaw Companies Limited

Nutrien

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nutrien are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Nutrien is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Loblaw Companies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Loblaw Companies is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nutrien and Loblaw Companies

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

The idea behind Nutrien and Loblaw Companies Limited 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.