Correlation Between EROAD and Wesfarmers

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

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

Diversification Opportunities for EROAD and Wesfarmers

0.28

Correlation Coefficient

EROAD  Wesfarmers

Modest diversification

The 3 months correlation between EROAD and Wesfarmers is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding EROAD and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers and EROAD 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 EROAD 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 EROAD i.e., EROAD and Wesfarmers go up and down completely randomly.

Pair Corralation between EROAD and Wesfarmers

Assuming the 90 days trading horizon EROAD is expected to generate 2.29 times more return on investment than Wesfarmers. However, EROAD is 2.29 times more volatile than Wesfarmers. It trades about 0.13 of its potential returns per unit of risk. Wesfarmers is currently generating about 0.03 per unit of risk. If you would invest  80.00  in EROAD on October 22, 2024 and sell it today you would earn a total of  18.00  from holding EROAD or generate 22.5% return on investment over 90 days.

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

EROAD  vs.  Wesfarmers

EROAD

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EROAD are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, EROAD unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wesfarmers

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 2 (%) 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 EROAD and Wesfarmers

The main advantage of trading using opposite EROAD and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EROAD 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 EROAD 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.