Correlation Between Wesfarmers and Suncorp
Can any of the company-specific risk be diversified away by investing in both Wesfarmers and Suncorp 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 Wesfarmers and Suncorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wesfarmers and Suncorp Group, you can compare the effects of market volatilities on Wesfarmers and Suncorp 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 Wesfarmers with a short position of Suncorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wesfarmers and Suncorp.
Diversification Opportunities for Wesfarmers and Suncorp
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wesfarmers and Suncorp is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Suncorp Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suncorp Group and Wesfarmers 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 Wesfarmers are associated (or correlated) with Suncorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suncorp Group has no effect on the direction of Wesfarmers i.e., Wesfarmers and Suncorp go up and down completely randomly.
Pair Corralation between Wesfarmers and Suncorp
Assuming the 90 days trading horizon Wesfarmers is expected to generate 1.17 times more return on investment than Suncorp. However, Wesfarmers is 1.17 times more volatile than Suncorp Group. It trades about -0.01 of its potential returns per unit of risk. Suncorp Group is currently generating about -0.05 per unit of risk. If you would invest 7,223 in Wesfarmers on September 25, 2024 and sell it today you would lose (40.00) from holding Wesfarmers or give up 0.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Wesfarmers vs. Suncorp Group
Performance |
| Timeline |
| Wesfarmers |
| Suncorp Group |
Wesfarmers and Suncorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wesfarmers and Suncorp
The main advantage of trading using opposite Wesfarmers and Suncorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers position performs unexpectedly, Suncorp 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 Suncorp will offset losses from the drop in Suncorp's long position.| Wesfarmers vs. Ecofibre | Wesfarmers vs. iShares Global Healthcare | Wesfarmers vs. Adriatic Metals Plc | Wesfarmers vs. Australian Dairy Farms |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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