Correlation Between Tesco PLC and J Sainsbury
Can any of the company-specific risk be diversified away by investing in both Tesco PLC and J Sainsbury 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 J Sainsbury into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesco PLC and J Sainsbury PLC, you can compare the effects of market volatilities on Tesco PLC and J Sainsbury 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 J Sainsbury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesco PLC and J Sainsbury.
Diversification Opportunities for Tesco PLC and J Sainsbury
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Tesco and JSAIY is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and J Sainsbury PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on J Sainsbury PLC 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 J Sainsbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of J Sainsbury PLC has no effect on the direction of Tesco PLC i.e., Tesco PLC and J Sainsbury go up and down completely randomly.
Pair Corralation between Tesco PLC and J Sainsbury
Assuming the 90 days horizon Tesco PLC is expected to generate 0.75 times more return on investment than J Sainsbury. However, Tesco PLC is 1.33 times less risky than J Sainsbury. It trades about -0.15 of its potential returns per unit of risk. J Sainsbury PLC is currently generating about -0.24 per unit of risk. If you would invest 1,379 in Tesco PLC on August 28, 2024 and sell it today you would lose (51.00) from holding Tesco PLC or give up 3.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesco PLC vs. J Sainsbury PLC
Performance |
| Timeline |
| Tesco PLC |
| J Sainsbury PLC |
Tesco PLC and J Sainsbury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesco PLC and J Sainsbury
The main advantage of trading using opposite Tesco PLC and J Sainsbury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesco PLC position performs unexpectedly, J Sainsbury 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 J Sainsbury will offset losses from the drop in J Sainsbury's long position.| Tesco PLC vs. Ocado Group PLC | Tesco PLC vs. Dairy Farm International | Tesco PLC vs. Woolworths Group Limited | Tesco PLC vs. Kesko Oyj ADR |
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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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