Correlation Between Tesco PLC and Kroger

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

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

Diversification Opportunities for Tesco PLC and Kroger

-0.59

Correlation Coefficient

Tesco PLC  Kroger

Excellent diversification

The 3 months correlation between Tesco and Kroger is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Kroger Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kroger Company 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 Kroger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kroger Company has no effect on the direction of Tesco PLC i.e., Tesco PLC and Kroger go up and down completely randomly.

Pair Corralation between Tesco PLC and Kroger

Assuming the 90 days horizon Tesco PLC is expected to generate 15.62 times less return on investment than Kroger. In addition to that, Tesco PLC is 1.51 times more volatile than Kroger Company. It trades about 0.01 of its total potential returns per unit of risk. Kroger Company is currently generating about 0.15 per unit of volatility. If you would invest  5,341  in Kroger Company on September 2, 2024 and sell it today you would earn a total of  767.00  from holding Kroger Company or generate 14.36% 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.  Kroger Company

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Kroger Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Kroger reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesco PLC and Kroger

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

The idea behind Tesco PLC and Kroger Company 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.