Correlation Between Daito Trust and Wesfarmers

Can any of the company-specific risk be diversified away by investing in both Daito Trust and Wesfarmers 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 Daito Trust and Wesfarmers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daito Trust Construction and Wesfarmers Limited, you can compare the effects of market volatilities on Daito Trust and Wesfarmers 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 Daito Trust with a short position of Wesfarmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daito Trust and Wesfarmers.

Diversification Opportunities for Daito Trust and Wesfarmers

0.64

Correlation Coefficient

Daito Trust  Wesfarmers

Poor diversification

The 3 months correlation between Daito and Wesfarmers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Daito Trust Construction and Wesfarmers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers Limited and Daito Trust 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 Daito Trust Construction are associated (or correlated) with Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers Limited has no effect on the direction of Daito Trust i.e., Daito Trust and Wesfarmers go up and down completely randomly.

Pair Corralation between Daito Trust and Wesfarmers

Assuming the 90 days horizon Daito Trust Construction is expected to under-perform the Wesfarmers. But the stock apears to be less risky and, when comparing its historical volatility, Daito Trust Construction is 1.37 times less risky than Wesfarmers. The stock trades about -0.01 of its potential returns per unit of risk. The Wesfarmers Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,249  in Wesfarmers Limited on October 4, 2024 and sell it today you would earn a total of  73.00  from holding Wesfarmers Limited or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Daito Trust Construction  vs.  Wesfarmers Limited

Daito Trust Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daito Trust Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Daito Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Wesfarmers Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Wesfarmers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Daito Trust and Wesfarmers

The main advantage of trading using opposite Daito Trust and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daito Trust position performs unexpectedly, Wesfarmers 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 Wesfarmers will offset losses from the drop in Wesfarmers' long position.

The idea behind Daito Trust Construction and Wesfarmers Limited 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.