Correlation Between Tesco PLC and Dingdong ADR

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

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

Diversification Opportunities for Tesco PLC and Dingdong ADR

-0.57

Correlation Coefficient

Tesco PLC  Dingdong ADR

Excellent diversification

The 3 months correlation between Tesco and Dingdong is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Dingdong ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dingdong ADR 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 Dingdong ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dingdong ADR has no effect on the direction of Tesco PLC i.e., Tesco PLC and Dingdong ADR go up and down completely randomly.

Pair Corralation between Tesco PLC and Dingdong ADR

Assuming the 90 days horizon Tesco PLC is expected to under-perform the Dingdong ADR. But the pink sheet apears to be less risky and, when comparing its historical volatility, Tesco PLC is 2.63 times less risky than Dingdong ADR. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Dingdong ADR is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  274.00  in Dingdong ADR on September 19, 2024 and sell it today you would earn a total of  150.00  from holding Dingdong ADR or generate 54.74% 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  vs.  Dingdong ADR

Tesco PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tesco PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Tesco PLC is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Dingdong ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dingdong ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Dingdong ADR disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesco PLC and Dingdong ADR

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

The idea behind Tesco PLC and Dingdong ADR 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.