Correlation Between Woolworths Group and Loblaw Companies

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

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

Diversification Opportunities for Woolworths Group and Loblaw Companies

-0.63

Correlation Coefficient

Woolworths Group  Loblaw Companies

Excellent diversification

The 3 months correlation between Woolworths and Loblaw is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths Group Limited and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and Woolworths Group 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 Woolworths Group Limited 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 Woolworths Group i.e., Woolworths Group and Loblaw Companies go up and down completely randomly.

Pair Corralation between Woolworths Group and Loblaw Companies

Assuming the 90 days horizon Woolworths Group Limited is expected to under-perform the Loblaw Companies. But the stock apears to be less risky and, when comparing its historical volatility, Woolworths Group Limited is 1.09 times less risky than Loblaw Companies. The stock trades about -0.14 of its potential returns per unit of risk. The Loblaw Companies Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11,900  in Loblaw Companies Limited on September 13, 2024 and sell it today you would earn a total of  900.00  from holding Loblaw Companies Limited or generate 7.56% return on investment over 90 days.

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

Woolworths Group Limited  vs.  Loblaw Companies Limited

Woolworths Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Loblaw Companies

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Loblaw Companies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Woolworths Group and Loblaw Companies

The main advantage of trading using opposite Woolworths Group and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woolworths Group 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 Woolworths Group Limited 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..