Correlation Between Kingfisher Plc and Wesfarmers

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

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

Diversification Opportunities for Kingfisher Plc and Wesfarmers

0.3

Correlation Coefficient

Kingfisher Plc  Wesfarmers

Weak diversification

The 3 months correlation between Kingfisher and Wesfarmers is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Kingfisher plc and Wesfarmers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers Limited and Kingfisher Plc 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 Kingfisher plc 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 Kingfisher Plc i.e., Kingfisher Plc and Wesfarmers go up and down completely randomly.

Pair Corralation between Kingfisher Plc and Wesfarmers

Assuming the 90 days trading horizon Kingfisher plc is expected to generate 0.95 times more return on investment than Wesfarmers. However, Kingfisher plc is 1.05 times less risky than Wesfarmers. It trades about 0.0 of its potential returns per unit of risk. Wesfarmers Limited is currently generating about -0.05 per unit of risk. If you would invest  311.00  in Kingfisher plc on December 11, 2024 and sell it today you would lose (1.00) from holding Kingfisher plc or give up 0.32% of portfolio value over 90 days.

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

Kingfisher plc  vs.  Wesfarmers Limited

Kingfisher plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kingfisher plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Kingfisher Plc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Wesfarmers Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wesfarmers Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Kingfisher Plc and Wesfarmers

The main advantage of trading using opposite Kingfisher Plc and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kingfisher Plc 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 Kingfisher plc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.