Correlation Between Tesco PLC and Carrefour

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

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

Diversification Opportunities for Tesco PLC and Carrefour

0.14

Correlation Coefficient

Tesco PLC  Carrefour

Average diversification

The 3 months correlation between Tesco and Carrefour is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Carrefour SA PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carrefour SA PK 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 Carrefour. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carrefour SA PK has no effect on the direction of Tesco PLC i.e., Tesco PLC and Carrefour go up and down completely randomly.

Pair Corralation between Tesco PLC and Carrefour

Assuming the 90 days horizon Tesco PLC is expected to generate 0.66 times more return on investment than Carrefour. However, Tesco PLC is 1.51 times less risky than Carrefour. It trades about 0.05 of its potential returns per unit of risk. Carrefour SA PK is currently generating about -0.12 per unit of risk. If you would invest  1,395  in Tesco PLC on November 29, 2024 and sell it today you would earn a total of  49.00  from holding Tesco PLC or generate 3.51% return on investment over 90 days.

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

Tesco PLC  vs.  Carrefour SA PK

Tesco PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tesco PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Tesco PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Carrefour SA PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carrefour SA PK 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 fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tesco PLC and Carrefour

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

The idea behind Tesco PLC and Carrefour SA PK 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.