Correlation Between Wayfair and Best Buy
Can any of the company-specific risk be diversified away by investing in both Wayfair and Best Buy 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 Wayfair and Best Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and Best Buy Co, you can compare the effects of market volatilities on Wayfair and Best Buy 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 Wayfair with a short position of Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Best Buy.
Diversification Opportunities for Wayfair and Best Buy
Poor diversification
The 3 months correlation between Wayfair and Best is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and Wayfair 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 Wayfair are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Wayfair i.e., Wayfair and Best Buy go up and down completely randomly.
Pair Corralation between Wayfair and Best Buy
Taking into account the 90-day investment horizon Wayfair is expected to generate 1.88 times more return on investment than Best Buy. However, Wayfair is 1.88 times more volatile than Best Buy Co. It trades about 0.18 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.03 per unit of risk. If you would invest 4,193 in Wayfair on September 4, 2024 and sell it today you would earn a total of 615.00 from holding Wayfair or generate 14.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. Best Buy Co
Performance |
| Timeline |
| Wayfair |
| Best Buy |
Wayfair and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and Best Buy
The main advantage of trading using opposite Wayfair and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.The idea behind Wayfair and Best Buy Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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