Correlation Between Coles and Woolworths

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

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

Diversification Opportunities for Coles and Woolworths

0.68

Correlation Coefficient

Coles  Woolworths

Poor diversification

The 3 months correlation between Coles and Woolworths is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Coles Group and Woolworths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths and Coles 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 Coles Group are associated (or correlated) with Woolworths. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths has no effect on the direction of Coles i.e., Coles and Woolworths go up and down completely randomly.

Pair Corralation between Coles and Woolworths

Assuming the 90 days trading horizon Coles Group is expected to generate 1.01 times more return on investment than Woolworths. However, Coles is 1.01 times more volatile than Woolworths. It trades about -0.11 of its potential returns per unit of risk. Woolworths is currently generating about -0.21 per unit of risk. If you would invest  1,863  in Coles Group on July 2, 2024 and sell it today you would lose (51.00) from holding Coles Group or give up 2.74% of portfolio value over 90 days.

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

Coles Group  vs.  Woolworths

Coles Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coles Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Coles may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Woolworths

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Woolworths are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Woolworths is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Coles and Woolworths

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

The idea behind Coles Group and Woolworths 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.