Correlation Between Charter Hall and Wesfarmers

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

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

Diversification Opportunities for Charter Hall and Wesfarmers

-0.26

Correlation Coefficient

Charter Hall  Wesfarmers

Very good diversification

The 3 months correlation between Charter and Wesfarmers is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Charter Hall Education and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers and Charter Hall 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 Charter Hall Education 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 has no effect on the direction of Charter Hall i.e., Charter Hall and Wesfarmers go up and down completely randomly.

Pair Corralation between Charter Hall and Wesfarmers

Assuming the 90 days trading horizon Charter Hall is expected to generate 3.55 times less return on investment than Wesfarmers. But when comparing it to its historical volatility, Charter Hall Education is 1.25 times less risky than Wesfarmers. It trades about 0.04 of its potential returns per unit of risk. Wesfarmers is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,768  in Wesfarmers on October 7, 2024 and sell it today you would earn a total of  413.00  from holding Wesfarmers or generate 6.1% return on investment over 90 days.

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

Charter Hall Education  vs.  Wesfarmers

Charter Hall Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charter Hall Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Wesfarmers

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Charter Hall and Wesfarmers

The main advantage of trading using opposite Charter Hall and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Hall 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 Charter Hall Education and Wesfarmers 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.