Correlation Between Wayfair and Hour Loop
Can any of the company-specific risk be diversified away by investing in both Wayfair and Hour Loop 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 Hour Loop into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and Hour Loop, you can compare the effects of market volatilities on Wayfair and Hour Loop 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 Hour Loop. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Hour Loop.
Diversification Opportunities for Wayfair and Hour Loop
Significant diversification
The 3 months correlation between Wayfair and Hour is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Hour Loop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hour Loop 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 Hour Loop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hour Loop has no effect on the direction of Wayfair i.e., Wayfair and Hour Loop go up and down completely randomly.
Pair Corralation between Wayfair and Hour Loop
Taking into account the 90-day investment horizon Wayfair is expected to under-perform the Hour Loop. But the stock apears to be less risky and, when comparing its historical volatility, Wayfair is 1.46 times less risky than Hour Loop. The stock trades about -0.12 of its potential returns per unit of risk. The Hour Loop is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 143.00 in Hour Loop on August 28, 2024 and sell it today you would earn a total of 9.00 from holding Hour Loop or generate 6.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. Hour Loop
Performance |
| Timeline |
| Wayfair |
| Hour Loop |
Wayfair and Hour Loop Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and Hour Loop
The main advantage of trading using opposite Wayfair and Hour Loop positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, Hour Loop 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 Hour Loop will offset losses from the drop in Hour Loop's long position.The idea behind Wayfair and Hour Loop 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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