Correlation Between SportsHero and Wesfarmers
Can any of the company-specific risk be diversified away by investing in both SportsHero and Wesfarmers 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 SportsHero and Wesfarmers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SportsHero and Wesfarmers, you can compare the effects of market volatilities on SportsHero and Wesfarmers 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 SportsHero with a short position of Wesfarmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of SportsHero and Wesfarmers.
Diversification Opportunities for SportsHero and Wesfarmers
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between SportsHero and Wesfarmers is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding SportsHero and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers and SportsHero 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 SportsHero are associated (or correlated) with Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers has no effect on the direction of SportsHero i.e., SportsHero and Wesfarmers go up and down completely randomly.
Pair Corralation between SportsHero and Wesfarmers
Assuming the 90 days trading horizon SportsHero is expected to generate 5.56 times more return on investment than Wesfarmers. However, SportsHero is 5.56 times more volatile than Wesfarmers. It trades about 0.33 of its potential returns per unit of risk. Wesfarmers is currently generating about 0.3 per unit of risk. If you would invest 1.40 in SportsHero on September 1, 2024 and sell it today you would earn a total of 0.60 from holding SportsHero or generate 42.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
SportsHero vs. Wesfarmers
Performance |
| Timeline |
| SportsHero |
| Wesfarmers |
SportsHero and Wesfarmers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SportsHero and Wesfarmers
The main advantage of trading using opposite SportsHero and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SportsHero position performs unexpectedly, Wesfarmers 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 Wesfarmers will offset losses from the drop in Wesfarmers' long position.| SportsHero vs. Westpac Banking | SportsHero vs. iShares Global Healthcare | SportsHero vs. Australian Dairy Farms | SportsHero vs. Adriatic Metals Plc |
| Wesfarmers vs. Epsilon Healthcare | Wesfarmers vs. Global Health | Wesfarmers vs. Neurotech International | Wesfarmers vs. Oceania Healthcare |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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