Correlation Between Flagship Investments and Wesfarmers

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

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

Diversification Opportunities for Flagship Investments and Wesfarmers

0.75

Correlation Coefficient

Flagship Investments  Wesfarmers

Poor diversification

The 3 months correlation between Flagship and Wesfarmers is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Flagship Investments and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers and Flagship Investments 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 Flagship Investments 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 Flagship Investments i.e., Flagship Investments and Wesfarmers go up and down completely randomly.

Pair Corralation between Flagship Investments and Wesfarmers

Assuming the 90 days trading horizon Flagship Investments is expected to generate 1.18 times less return on investment than Wesfarmers. In addition to that, Flagship Investments is 1.19 times more volatile than Wesfarmers. It trades about 0.06 of its total potential returns per unit of risk. Wesfarmers is currently generating about 0.09 per unit of volatility. If you would invest  5,564  in Wesfarmers on October 7, 2024 and sell it today you would earn a total of  1,617  from holding Wesfarmers or generate 29.06% return on investment over 90 days.

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

Flagship Investments  vs.  Wesfarmers

Flagship Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Flagship Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Flagship Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Flagship Investments and Wesfarmers

The main advantage of trading using opposite Flagship Investments and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flagship Investments 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 Flagship Investments 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.