Correlation Between Tesco PLC and Ocado Group

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

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

Diversification Opportunities for Tesco PLC and Ocado Group

0.47

Correlation Coefficient

Tesco PLC  Ocado Group

Very weak diversification

The 3 months correlation between Tesco and Ocado is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Ocado Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocado Group plc 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 Ocado Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocado Group plc has no effect on the direction of Tesco PLC i.e., Tesco PLC and Ocado Group go up and down completely randomly.

Pair Corralation between Tesco PLC and Ocado Group

Assuming the 90 days horizon Tesco PLC is expected to under-perform the Ocado Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Tesco PLC is 1.23 times less risky than Ocado Group. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Ocado Group plc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  835.00  in Ocado Group plc on September 12, 2024 and sell it today you would lose (31.00) from holding Ocado Group plc or give up 3.71% of portfolio value over 90 days.

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

Tesco PLC  vs.  Ocado Group plc

Tesco PLC

Risk-Adjusted Performance

0 of 100

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.

Ocado Group plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocado Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Ocado Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tesco PLC and Ocado Group

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

The idea behind Tesco PLC and Ocado Group plc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.