Correlation Between Reitmans (Canada) and Next PLC

Can any of the company-specific risk be diversified away by investing in both Reitmans (Canada) and Next 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 Reitmans (Canada) and Next PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Reitmans Limited and Next PLC ADR, you can compare the effects of market volatilities on Reitmans (Canada) and Next 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 Reitmans (Canada) with a short position of Next PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reitmans (Canada) and Next PLC.

Diversification Opportunities for Reitmans (Canada) and Next PLC

-0.02

Correlation Coefficient

Reitmans (Canada)  Next PLC

Good diversification

The 3 months correlation between Reitmans and Next is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Reitmans Limited and Next PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next PLC ADR and Reitmans (Canada) 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 Reitmans Limited are associated (or correlated) with Next PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next PLC ADR has no effect on the direction of Reitmans (Canada) i.e., Reitmans (Canada) and Next PLC go up and down completely randomly.

Pair Corralation between Reitmans (Canada) and Next PLC

Assuming the 90 days horizon Reitmans Limited is expected to under-perform the Next PLC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Reitmans Limited is 1.07 times less risky than Next PLC. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Next PLC ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,879  in Next PLC ADR on October 26, 2024 and sell it today you would earn a total of  1,953  from holding Next PLC ADR or generate 50.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

Reitmans Limited  vs.  Next PLC ADR

Reitmans (Canada)

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reitmans Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Next PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Next PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Reitmans (Canada) and Next PLC

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

The idea behind Reitmans Limited and Next PLC ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.