Correlation Between Tesco PLC and Woolworths Group

Can any of the company-specific risk be diversified away by investing in both Tesco PLC and Woolworths 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 Woolworths 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 Woolworths Group Limited, you can compare the effects of market volatilities on Tesco PLC and Woolworths 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 Woolworths Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesco PLC and Woolworths Group.

Diversification Opportunities for Tesco PLC and Woolworths Group

0.0

Correlation Coefficient

Tesco PLC  Woolworths Group

Pay attention - limited upside

The 3 months correlation between Tesco and Woolworths is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Woolworths Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Group 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 Woolworths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Group has no effect on the direction of Tesco PLC i.e., Tesco PLC and Woolworths Group go up and down completely randomly.

Pair Corralation between Tesco PLC and Woolworths Group

Assuming the 90 days horizon Tesco PLC is expected to generate 1.62 times less return on investment than Woolworths Group. But when comparing it to its historical volatility, Tesco PLC is 1.58 times less risky than Woolworths Group. It trades about 0.04 of its potential returns per unit of risk. Woolworths Group Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,890  in Woolworths Group Limited on November 28, 2024 and sell it today you would earn a total of  78.00  from holding Woolworths Group Limited or generate 4.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Tesco PLC  vs.  Woolworths Group Limited

Tesco PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tesco PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Woolworths Group

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Woolworths Group Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Woolworths Group may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Tesco PLC and Woolworths Group

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

The idea behind Tesco PLC and Woolworths Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.