Correlation Between Kroger and Grocery Outlet

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

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

Diversification Opportunities for Kroger and Grocery Outlet

-0.58

Correlation Coefficient

Kroger  Grocery Outlet

Excellent diversification

The 3 months correlation between Kroger and Grocery is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Kroger Company and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding and Kroger 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 Kroger Company are associated (or correlated) with Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of Kroger i.e., Kroger and Grocery Outlet go up and down completely randomly.

Pair Corralation between Kroger and Grocery Outlet

Allowing for the 90-day total investment horizon Kroger Company is expected to generate 0.78 times more return on investment than Grocery Outlet. However, Kroger Company is 1.28 times less risky than Grocery Outlet. It trades about 0.06 of its potential returns per unit of risk. Grocery Outlet Holding is currently generating about -0.05 per unit of risk. If you would invest  3,497  in Kroger Company on June 23, 2024 and sell it today you would earn a total of  2,042  from holding Kroger Company or generate 58.39% return on investment over 90 days.

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

Kroger Company  vs.  Grocery Outlet Holding

Kroger Company

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Kroger may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Grocery Outlet Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grocery Outlet Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in October 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Kroger and Grocery Outlet

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

The idea behind Kroger Company and Grocery Outlet Holding 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.