Correlation Between Wesfarmers and Kirklands
Can any of the company-specific risk be diversified away by investing in both Wesfarmers and Kirklands 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 Kirklands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wesfarmers Ltd ADR and Kirklands, you can compare the effects of market volatilities on Wesfarmers and Kirklands 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 Kirklands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wesfarmers and Kirklands.
Diversification Opportunities for Wesfarmers and Kirklands
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wesfarmers and Kirklands is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Ltd ADR and Kirklands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kirklands 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 Ltd ADR are associated (or correlated) with Kirklands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kirklands has no effect on the direction of Wesfarmers i.e., Wesfarmers and Kirklands go up and down completely randomly.
Pair Corralation between Wesfarmers and Kirklands
Assuming the 90 days horizon Wesfarmers Ltd ADR is expected to generate 0.56 times more return on investment than Kirklands. However, Wesfarmers Ltd ADR is 1.8 times less risky than Kirklands. It trades about 0.01 of its potential returns per unit of risk. Kirklands is currently generating about -0.08 per unit of risk. If you would invest 2,275 in Wesfarmers Ltd ADR on October 26, 2024 and sell it today you would earn a total of 10.00 from holding Wesfarmers Ltd ADR or generate 0.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wesfarmers Ltd ADR vs. Kirklands
Performance |
| Timeline |
| Wesfarmers ADR |
| Kirklands |
Wesfarmers and Kirklands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wesfarmers and Kirklands
The main advantage of trading using opposite Wesfarmers and Kirklands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers position performs unexpectedly, Kirklands 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 Kirklands will offset losses from the drop in Kirklands' long position.| Wesfarmers vs. Haverty Furniture Companies | Wesfarmers vs. Arhaus Inc | Wesfarmers vs. Home Depot | Wesfarmers vs. Lowes Companies |
| Kirklands vs. Floor Decor Holdings | Kirklands vs. Haverty Furniture Companies | Kirklands vs. Tile Shop Holdings | Kirklands vs. Arhaus 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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