Correlation Between BCE and Loblaw Companies
Can any of the company-specific risk be diversified away by investing in both BCE 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 BCE and Loblaw Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BCE Inc and Loblaw Companies Limited, you can compare the effects of market volatilities on BCE 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 BCE with a short position of Loblaw Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Loblaw Companies.
Diversification Opportunities for BCE and Loblaw Companies
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between BCE and Loblaw is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and BCE 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 BCE Inc 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 BCE i.e., BCE and Loblaw Companies go up and down completely randomly.
Pair Corralation between BCE and Loblaw Companies
Assuming the 90 days trading horizon BCE Inc is expected to under-perform the Loblaw Companies. But the stock apears to be less risky and, when comparing its historical volatility, BCE Inc is 1.03 times less risky than Loblaw Companies. The stock trades about -0.07 of its potential returns per unit of risk. The Loblaw Companies Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 12,091 in Loblaw Companies Limited on August 31, 2024 and sell it today you would earn a total of 6,104 from holding Loblaw Companies Limited or generate 50.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BCE Inc vs. Loblaw Companies Limited
Performance |
| Timeline |
| BCE Inc |
| Loblaw Companies |
BCE and Loblaw Companies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BCE and Loblaw Companies
The main advantage of trading using opposite BCE and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE 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 BCE Inc 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.| Loblaw Companies vs. Metro Inc | Loblaw Companies vs. George Weston Limited | Loblaw Companies vs. Canadian Tire | Loblaw Companies vs. Dollarama |
Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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