Correlation Between Goodfellow and Wajax

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

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

Diversification Opportunities for Goodfellow and Wajax

0.57

Correlation Coefficient

Goodfellow  Wajax

Very weak diversification

The 3 months correlation between Goodfellow and Wajax is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Goodfellow and Wajax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wajax and Goodfellow 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 Goodfellow are associated (or correlated) with Wajax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wajax has no effect on the direction of Goodfellow i.e., Goodfellow and Wajax go up and down completely randomly.

Pair Corralation between Goodfellow and Wajax

Assuming the 90 days trading horizon Goodfellow is expected to under-perform the Wajax. But the stock apears to be less risky and, when comparing its historical volatility, Goodfellow is 1.47 times less risky than Wajax. The stock trades about -0.04 of its potential returns per unit of risk. The Wajax is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,444  in Wajax on September 12, 2024 and sell it today you would lose (110.00) from holding Wajax or give up 4.5% of portfolio value over 90 days.

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

Goodfellow  vs.  Wajax

Goodfellow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goodfellow has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Goodfellow is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Wajax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wajax has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Wajax is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Goodfellow and Wajax

The main advantage of trading using opposite Goodfellow and Wajax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodfellow position performs unexpectedly, Wajax 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 Wajax will offset losses from the drop in Wajax's long position.

The idea behind Goodfellow and Wajax 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.