Correlation Between S A P and Loblaw Companies

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

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

Diversification Opportunities for S A P and Loblaw Companies

-0.5

Correlation Coefficient

S A P  Loblaw Companies

Very good diversification

The 3 months correlation between SAP and Loblaw is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Saputo Inc and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and S A P 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 Saputo Inc 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 S A P i.e., S A P and Loblaw Companies go up and down completely randomly.

Pair Corralation between S A P and Loblaw Companies

Assuming the 90 days trading horizon Saputo Inc is expected to under-perform the Loblaw Companies. In addition to that, S A P is 1.32 times more volatile than Loblaw Companies Limited. It trades about -0.03 of its total potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.09 per unit of volatility. If you would invest  12,091  in Loblaw Companies Limited on September 2, 2024 and sell it today you would earn a total of  6,079  from holding Loblaw Companies Limited or generate 50.28% return on investment over 90 days.

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

Saputo Inc  vs.  Loblaw Companies Limited

Saputo Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Saputo Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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 S A P and Loblaw Companies

The main advantage of trading using opposite S A P and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P 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 Saputo Inc 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.