Correlation Between OReilly Automotive and Webster Financial

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

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

Diversification Opportunities for OReilly Automotive and Webster Financial

0.9

Correlation Coefficient

OReilly Automotive  Webster Financial

Almost no diversification

The 3 months correlation between OReilly and Webster is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and OReilly Automotive 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 OReilly Automotive are associated (or correlated) with Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of OReilly Automotive i.e., OReilly Automotive and Webster Financial go up and down completely randomly.

Pair Corralation between OReilly Automotive and Webster Financial

Assuming the 90 days horizon OReilly Automotive is expected to generate 2.49 times less return on investment than Webster Financial. But when comparing it to its historical volatility, OReilly Automotive is 2.21 times less risky than Webster Financial. It trades about 0.12 of its potential returns per unit of risk. Webster Financial is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,165  in Webster Financial on October 5, 2024 and sell it today you would earn a total of  1,085  from holding Webster Financial or generate 26.05% return on investment over 90 days.

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

OReilly Automotive  vs.  Webster Financial

OReilly Automotive

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days OReilly Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unfluctuating basic indicators, OReilly Automotive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Webster Financial

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Webster Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OReilly Automotive and Webster Financial

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

The idea behind OReilly Automotive and Webster Financial 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.