Correlation Between Premium Brands and Loblaw Companies
Can any of the company-specific risk be diversified away by investing in both Premium Brands 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 Premium Brands and Loblaw Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Premium Brands Holdings and Loblaw Companies Limited, you can compare the effects of market volatilities on Premium Brands 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 Premium Brands with a short position of Loblaw Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Premium Brands and Loblaw Companies.
Diversification Opportunities for Premium Brands and Loblaw Companies
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Premium and Loblaw is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Premium Brands Holdings and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies and Premium Brands 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 Premium Brands Holdings 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 Premium Brands i.e., Premium Brands and Loblaw Companies go up and down completely randomly.
Pair Corralation between Premium Brands and Loblaw Companies
Assuming the 90 days trading horizon Premium Brands Holdings is expected to under-perform the Loblaw Companies. In addition to that, Premium Brands is 1.55 times more volatile than Loblaw Companies Limited. It trades about -0.16 of its total potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.04 per unit of volatility. If you would invest 17,702 in Loblaw Companies Limited on October 15, 2024 and sell it today you would earn a total of 434.00 from holding Loblaw Companies Limited or generate 2.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Premium Brands Holdings vs. Loblaw Companies Limited
Performance |
| Timeline |
| Premium Brands Holdings |
| Loblaw Companies |
Premium Brands and Loblaw Companies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Premium Brands and Loblaw Companies
The main advantage of trading using opposite Premium Brands and Loblaw Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premium Brands 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.| Premium Brands vs. CCL Industries | Premium Brands vs. North West | Premium Brands vs. Maple Leaf Foods | Premium Brands vs. FirstService Corp |
| 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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