Correlation Between Wayfair and Etsy
Can any of the company-specific risk be diversified away by investing in both Wayfair and Etsy 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 Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and Etsy Inc, you can compare the effects of market volatilities on Wayfair and Etsy 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 Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Etsy.
Diversification Opportunities for Wayfair and Etsy
Very weak diversification
The 3 months correlation between Wayfair and Etsy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc 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 Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Wayfair i.e., Wayfair and Etsy go up and down completely randomly.
Pair Corralation between Wayfair and Etsy
Taking into account the 90-day investment horizon Wayfair is expected to generate 1.27 times more return on investment than Etsy. However, Wayfair is 1.27 times more volatile than Etsy Inc. It trades about -0.02 of its potential returns per unit of risk. Etsy Inc is currently generating about -0.16 per unit of risk. If you would invest 4,572 in Wayfair on October 21, 2024 and sell it today you would lose (73.00) from holding Wayfair or give up 1.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. Etsy Inc
Performance |
| Timeline |
| Wayfair |
| Etsy Inc |
Wayfair and Etsy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and Etsy
The main advantage of trading using opposite Wayfair and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.The idea behind Wayfair and Etsy Inc 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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