Correlation Between Wayfair and PetMed Express
Can any of the company-specific risk be diversified away by investing in both Wayfair and PetMed Express 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 PetMed Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and PetMed Express, you can compare the effects of market volatilities on Wayfair and PetMed Express 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 PetMed Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and PetMed Express.
Diversification Opportunities for Wayfair and PetMed Express
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Wayfair and PetMed is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and PetMed Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetMed Express 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 PetMed Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetMed Express has no effect on the direction of Wayfair i.e., Wayfair and PetMed Express go up and down completely randomly.
Pair Corralation between Wayfair and PetMed Express
Taking into account the 90-day investment horizon Wayfair is expected to generate 1.21 times more return on investment than PetMed Express. However, Wayfair is 1.21 times more volatile than PetMed Express. It trades about 0.01 of its potential returns per unit of risk. PetMed Express is currently generating about -0.06 per unit of risk. If you would invest 5,465 in Wayfair on October 15, 2024 and sell it today you would lose (1,055) from holding Wayfair or give up 19.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. PetMed Express
Performance |
| Timeline |
| Wayfair |
| PetMed Express |
Wayfair and PetMed Express Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and PetMed Express
The main advantage of trading using opposite Wayfair and PetMed Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, PetMed Express 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 PetMed Express will offset losses from the drop in PetMed Express' long position.The idea behind Wayfair and PetMed Express 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.| PetMed Express vs. High Tide | PetMed Express vs. China Jo Jo Drugstores | PetMed Express vs. Walgreens Boots Alliance | PetMed Express vs. 111 Inc |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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