Correlation Between Schroder European and Woolworths Holdings

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

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

Diversification Opportunities for Schroder European and Woolworths Holdings

0.21

Correlation Coefficient

Schroder European  Woolworths Holdings

Modest diversification

The 3 months correlation between Schroder and Woolworths is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Schroder European Real and Woolworths Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings and Schroder European 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 Schroder European Real 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 Schroder European i.e., Schroder European and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Schroder European and Woolworths Holdings

Assuming the 90 days trading horizon Schroder European Real is expected to under-perform the Woolworths Holdings. In addition to that, Schroder European is 2.38 times more volatile than Woolworths Holdings. It trades about -0.13 of its total potential returns per unit of risk. Woolworths Holdings is currently generating about -0.1 per unit of volatility. If you would invest  667,800  in Woolworths Holdings on October 11, 2024 and sell it today you would lose (65,200) from holding Woolworths Holdings or give up 9.76% of portfolio value over 90 days.

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

Schroder European Real  vs.  Woolworths Holdings

Schroder European Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schroder European Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Schroder European and Woolworths Holdings

The main advantage of trading using opposite Schroder European and Woolworths Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schroder European 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 Schroder European Real 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.