Correlation Between Tesco PLC and Krispy Kreme

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

By analyzing existing cross correlation between Tesco PLC and Krispy Kreme, you can compare the effects of market volatilities on Tesco PLC and Krispy Kreme 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 Krispy Kreme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesco PLC and Krispy Kreme.

Diversification Opportunities for Tesco PLC and Krispy Kreme

0.05

Correlation Coefficient

Tesco PLC  Krispy Kreme

Significant diversification

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

Pair Corralation between Tesco PLC and Krispy Kreme

Assuming the 90 days horizon Tesco PLC is expected to generate 0.63 times more return on investment than Krispy Kreme. However, Tesco PLC is 1.58 times less risky than Krispy Kreme. It trades about 0.0 of its potential returns per unit of risk. Krispy Kreme is currently generating about -0.21 per unit of risk. If you would invest  450.00  in Tesco PLC on December 28, 2024 and sell it today you would lose (9.00) from holding Tesco PLC or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Tesco PLC  vs.  Krispy Kreme

Tesco PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tesco PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Tesco PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Krispy Kreme

Risk-Adjusted Performance

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Tesco PLC and Krispy Kreme

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

The idea behind Tesco PLC and Krispy Kreme 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.