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 ADR1 and Carrefour SA, 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

-0.52

Correlation Coefficient

TESCO PLC  Carrefour

Excellent diversification

The 3 months correlation between TESCO and Carrefour is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding TESCO PLC ADR1 and Carrefour SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carrefour SA 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 ADR1 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 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 trading horizon TESCO PLC ADR1 is expected to generate 0.98 times more return on investment than Carrefour. However, TESCO PLC ADR1 is 1.02 times less risky than Carrefour. It trades about 0.06 of its potential returns per unit of risk. Carrefour SA is currently generating about -0.15 per unit of risk. If you would invest  1,213  in TESCO PLC ADR1 on September 27, 2024 and sell it today you would earn a total of  67.00  from holding TESCO PLC ADR1 or generate 5.52% return on investment over 90 days.

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

TESCO PLC ADR1  vs.  Carrefour SA

TESCO PLC ADR1

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TESCO PLC ADR1 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, TESCO PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Carrefour SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carrefour SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 ADR1 and Carrefour SA 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.