Correlation Between Loblaw Companies and Restaurant Brands

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

By analyzing existing cross correlation between Loblaw Companies Limited and Restaurant Brands International, you can compare the effects of market volatilities on Loblaw Companies and Restaurant Brands 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 Loblaw Companies with a short position of Restaurant Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loblaw Companies and Restaurant Brands.

Diversification Opportunities for Loblaw Companies and Restaurant Brands

-0.02

Correlation Coefficient

Loblaw Companies  Restaurant Brands

Good diversification

The 3 months correlation between Loblaw and Restaurant is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Loblaw Companies Limited and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands and Loblaw Companies 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 Loblaw Companies Limited are associated (or correlated) with Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Loblaw Companies i.e., Loblaw Companies and Restaurant Brands go up and down completely randomly.

Pair Corralation between Loblaw Companies and Restaurant Brands

Given the investment horizon of 90 days Loblaw Companies is expected to generate 1.58 times less return on investment than Restaurant Brands. But when comparing it to its historical volatility, Loblaw Companies Limited is 1.07 times less risky than Restaurant Brands. It trades about 0.06 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,219  in Restaurant Brands International on September 3, 2024 and sell it today you would earn a total of  584.00  from holding Restaurant Brands International or generate 6.33% return on investment over 90 days.

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

Loblaw Companies Limited  vs.  Restaurant Brands Internationa

Loblaw Companies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Loblaw Companies is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Restaurant Brands

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Restaurant Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Loblaw Companies and Restaurant Brands

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

The idea behind Loblaw Companies Limited and Restaurant Brands International 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.