Correlation Between Brambles and Wesfarmers

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

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

Diversification Opportunities for Brambles and Wesfarmers

0.58

Correlation Coefficient

Brambles  Wesfarmers

Very weak diversification

The 3 months correlation between Brambles and Wesfarmers is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Brambles Ltd ADR and Wesfarmers Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers ADR and Brambles 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 Brambles Ltd ADR 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 ADR has no effect on the direction of Brambles i.e., Brambles and Wesfarmers go up and down completely randomly.

Pair Corralation between Brambles and Wesfarmers

Assuming the 90 days horizon Brambles is expected to generate 2.25 times less return on investment than Wesfarmers. But when comparing it to its historical volatility, Brambles Ltd ADR is 1.46 times less risky than Wesfarmers. It trades about 0.0 of its potential returns per unit of risk. Wesfarmers Ltd ADR is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,258  in Wesfarmers Ltd ADR on October 25, 2024 and sell it today you would lose (5.00) from holding Wesfarmers Ltd ADR or give up 0.22% of portfolio value over 90 days.

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

Brambles Ltd ADR  vs.  Wesfarmers Ltd ADR

Brambles ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brambles Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Brambles is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Wesfarmers ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesfarmers Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Wesfarmers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brambles and Wesfarmers

The main advantage of trading using opposite Brambles and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brambles 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 Brambles Ltd ADR and Wesfarmers Ltd ADR 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.