Correlation Between Tesco PLC and Weis Markets

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

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

Diversification Opportunities for Tesco PLC and Weis Markets

0.7

Correlation Coefficient

Tesco PLC  Weis Markets

Poor diversification

The 3 months correlation between Tesco and Weis is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Weis Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weis Markets 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 Weis Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weis Markets has no effect on the direction of Tesco PLC i.e., Tesco PLC and Weis Markets go up and down completely randomly.

Pair Corralation between Tesco PLC and Weis Markets

Assuming the 90 days horizon Tesco PLC is expected to generate 0.9 times more return on investment than Weis Markets. However, Tesco PLC is 1.11 times less risky than Weis Markets. It trades about 0.05 of its potential returns per unit of risk. Weis Markets is currently generating about 0.04 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	Significant
Accuracy	100.0%
Values	Daily Returns

Tesco PLC  vs.  Weis Markets

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.

Weis Markets

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Weis Markets are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, Weis Markets is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tesco PLC and Weis Markets

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

The idea behind Tesco PLC and Weis Markets 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.