Correlation Between Pick N and Woolworths Holdings

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

By analyzing existing cross correlation between Pick N Pay and Woolworths Holdings, you can compare the effects of market volatilities on Pick N and Woolworths Holdings 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 Pick N with a short position of Woolworths Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pick N and Woolworths Holdings.

Diversification Opportunities for Pick N and Woolworths Holdings

0.05

Correlation Coefficient

Pick N  Woolworths Holdings

Significant diversification

The 3 months correlation between Pick and Woolworths is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Pick N Pay and Woolworths Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings and Pick N 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 Pick N Pay are associated (or correlated) with Woolworths Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Holdings has no effect on the direction of Pick N i.e., Pick N and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Pick N and Woolworths Holdings

Assuming the 90 days trading horizon Pick N Pay is expected to generate 1.23 times more return on investment than Woolworths Holdings. However, Pick N is 1.23 times more volatile than Woolworths Holdings. It trades about 0.23 of its potential returns per unit of risk. Woolworths Holdings is currently generating about 0.05 per unit of risk. If you would invest  236,100  in Pick N Pay on September 15, 2024 and sell it today you would earn a total of  74,000  from holding Pick N Pay or generate 31.34% return on investment over 90 days.

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

Pick N Pay  vs.  Woolworths Holdings

Pick N Pay

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pick N Pay are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Pick N exhibited solid returns over the last few months and may actually be approaching a breakup point.

Woolworths Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Woolworths Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Woolworths Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Pick N and Woolworths Holdings

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

The idea behind Pick N Pay and Woolworths Holdings 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.