Correlation Between Etsy and Wayfair
Can any of the company-specific risk be diversified away by investing in both Etsy 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 Etsy and Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Etsy Inc and Wayfair, you can compare the effects of market volatilities on Etsy 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 Etsy with a short position of Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Etsy and Wayfair.
Diversification Opportunities for Etsy and Wayfair
Significant diversification
The 3 months correlation between Etsy and Wayfair is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and Etsy 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 Etsy 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 Etsy i.e., Etsy and Wayfair go up and down completely randomly.
Pair Corralation between Etsy and Wayfair
Given the investment horizon of 90 days Etsy Inc is expected to generate 0.63 times more return on investment than Wayfair. However, Etsy Inc is 1.6 times less risky than Wayfair. It trades about 0.25 of its potential returns per unit of risk. Wayfair is currently generating about 0.11 per unit of risk. If you would invest 4,877 in Etsy Inc on August 28, 2024 and sell it today you would earn a total of 691.00 from holding Etsy Inc or generate 14.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Etsy Inc vs. Wayfair
Performance |
| Timeline |
| Etsy Inc |
| Wayfair |
Etsy and Wayfair Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Etsy and Wayfair
The main advantage of trading using opposite Etsy and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy 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 Etsy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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