Correlation Between Restaurant Brands and Loblaw Companies

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

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

Diversification Opportunities for Restaurant Brands and Loblaw Companies

-0.02

Correlation Coefficient

Restaurant Brands  Loblaw Companies

Good diversification

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

Pair Corralation between Restaurant Brands and Loblaw Companies

Assuming the 90 days trading horizon Restaurant Brands International is expected to generate 1.07 times more return on investment than Loblaw Companies. However, Restaurant Brands is 1.07 times more volatile than Loblaw Companies Limited. It trades about 0.09 of its potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.06 per unit of risk. 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

Restaurant Brands Internationa  vs.  Loblaw Companies Limited

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.

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.

Pair Trading with Restaurant Brands and Loblaw Companies

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

The idea behind Restaurant Brands International and Loblaw Companies 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.