Correlation Between TESCO PLC and Loblaw Companies

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

By analyzing existing cross correlation between TESCO PLC ADR1 and Loblaw Companies Limited, you can compare the effects of market volatilities on TESCO PLC 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 TESCO PLC with a short position of Loblaw Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of TESCO PLC and Loblaw Companies.

Diversification Opportunities for TESCO PLC and Loblaw Companies

0.71

Correlation Coefficient

TESCO PLC  Loblaw Companies

Poor diversification

The 3 months correlation between TESCO and Loblaw is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding TESCO PLC ADR1 and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and TESCO PLC 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 TESCO PLC ADR1 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 TESCO PLC i.e., TESCO PLC and Loblaw Companies go up and down completely randomly.

Pair Corralation between TESCO PLC and Loblaw Companies

Assuming the 90 days trading horizon TESCO PLC ADR1 is expected to generate 1.33 times more return on investment than Loblaw Companies. However, TESCO PLC is 1.33 times more volatile than Loblaw Companies Limited. It trades about 0.08 of its potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.11 per unit of risk. If you would invest  1,046  in TESCO PLC ADR1 on October 13, 2024 and sell it today you would earn a total of  214.00  from holding TESCO PLC ADR1 or generate 20.46% return on investment over 90 days.

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

TESCO PLC ADR1  vs.  Loblaw Companies Limited

TESCO PLC ADR1

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TESCO PLC ADR1 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, TESCO PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Loblaw Companies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Loblaw Companies may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TESCO PLC and Loblaw Companies

The main advantage of trading using opposite TESCO PLC and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TESCO PLC 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 TESCO PLC ADR1 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.