Correlation Between Chewy and Wayfair
Can any of the company-specific risk be diversified away by investing in both Chewy and Wayfair 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 Chewy and Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chewy Inc and Wayfair, you can compare the effects of market volatilities on Chewy and Wayfair 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 Chewy with a short position of Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chewy and Wayfair.
Diversification Opportunities for Chewy and Wayfair
Good diversification
The 3 months correlation between Chewy and Wayfair is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Chewy Inc and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and Chewy 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 Chewy Inc are associated (or correlated) with Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of Chewy i.e., Chewy and Wayfair go up and down completely randomly.
Pair Corralation between Chewy and Wayfair
Given the investment horizon of 90 days Chewy is expected to generate 5.15 times less return on investment than Wayfair. But when comparing it to its historical volatility, Chewy Inc is 1.31 times less risky than Wayfair. It trades about 0.01 of its potential returns per unit of risk. Wayfair is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,702 in Wayfair on August 27, 2024 and sell it today you would earn a total of 701.00 from holding Wayfair or generate 18.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chewy Inc vs. Wayfair
Performance |
| Timeline |
| Chewy Inc |
| Wayfair |
Chewy and Wayfair Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chewy and Wayfair
The main advantage of trading using opposite Chewy and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chewy position performs unexpectedly, Wayfair 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 Wayfair will offset losses from the drop in Wayfair's long position.The idea behind Chewy Inc and Wayfair 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
Other Complementary Tools
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. |