Correlation Between Apple and Wesfarmers

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

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

Diversification Opportunities for Apple and Wesfarmers

0.64

Correlation Coefficient

Apple  Wesfarmers

Poor diversification

The 3 months correlation between Apple and Wesfarmers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Wesfarmers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers Limited and Apple 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 Apple Inc 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 Apple i.e., Apple and Wesfarmers go up and down completely randomly.

Pair Corralation between Apple and Wesfarmers

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.42 times more return on investment than Wesfarmers. However, Apple Inc is 2.39 times less risky than Wesfarmers. It trades about 0.6 of its potential returns per unit of risk. Wesfarmers Limited is currently generating about -0.09 per unit of risk. If you would invest  21,920  in Apple Inc on September 22, 2024 and sell it today you would earn a total of  2,300  from holding Apple Inc or generate 10.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Apple Inc  vs.  Wesfarmers Limited

Apple Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Apple unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wesfarmers Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesfarmers Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Apple and Wesfarmers

The main advantage of trading using opposite Apple and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.