Correlation Between Loblaw Companies and Supremex

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

Diversification Opportunities for Loblaw Companies and Supremex

-0.43

Correlation Coefficient

Loblaw Companies  Supremex

Very good diversification

The 3 months correlation between Loblaw and Supremex is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Loblaw Companies Limited and Supremex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Supremex 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 Supremex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Supremex has no effect on the direction of Loblaw Companies i.e., Loblaw Companies and Supremex go up and down completely randomly.

Pair Corralation between Loblaw Companies and Supremex

Given the investment horizon of 90 days Loblaw Companies Limited is expected to generate 0.57 times more return on investment than Supremex. However, Loblaw Companies Limited is 1.75 times less risky than Supremex. It trades about 0.13 of its potential returns per unit of risk. Supremex is currently generating about 0.0 per unit of risk. If you would invest  17,721  in Loblaw Companies Limited on September 25, 2024 and sell it today you would earn a total of  1,469  from holding Loblaw Companies Limited or generate 8.29% return on investment over 90 days.

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

Loblaw Companies Limited  vs.  Supremex

Loblaw Companies

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Loblaw Companies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Supremex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Supremex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Supremex is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Loblaw Companies and Supremex

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

The idea behind Loblaw Companies Limited and Supremex 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.