Correlation Between National Retail and Wesfarmers

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

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

Diversification Opportunities for National Retail and Wesfarmers

0.13

Correlation Coefficient

National Retail  Wesfarmers

Average diversification

The 3 months correlation between National and Wesfarmers is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Wesfarmers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers Limited and National Retail 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 National Retail Properties 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 National Retail i.e., National Retail and Wesfarmers go up and down completely randomly.

Pair Corralation between National Retail and Wesfarmers

Assuming the 90 days trading horizon National Retail Properties is expected to under-perform the Wesfarmers. In addition to that, National Retail is 1.23 times more volatile than Wesfarmers Limited. It trades about 0.0 of its total potential returns per unit of risk. Wesfarmers Limited is currently generating about 0.11 per unit of volatility. If you would invest  4,293  in Wesfarmers Limited on October 24, 2024 and sell it today you would earn a total of  77.00  from holding Wesfarmers Limited or generate 1.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

National Retail Properties  vs.  Wesfarmers Limited

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic 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 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 National Retail and Wesfarmers

The main advantage of trading using opposite National Retail and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Retail 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 National Retail Properties 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.