Correlation Between RH and Williams Sonoma

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

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

Diversification Opportunities for RH and Williams Sonoma

0.6

Correlation Coefficient

RH  Williams Sonoma

Poor diversification

The 3 months correlation between RH and Williams is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding RH and Williams Sonoma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Williams Sonoma and RH 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 RH are associated (or correlated) with Williams Sonoma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Williams Sonoma has no effect on the direction of RH i.e., RH and Williams Sonoma go up and down completely randomly.

Pair Corralation between RH and Williams Sonoma

Allowing for the 90-day total investment horizon RH is expected to under-perform the Williams Sonoma. In addition to that, RH is 1.6 times more volatile than Williams Sonoma. It trades about -0.03 of its total potential returns per unit of risk. Williams Sonoma is currently generating about 0.12 per unit of volatility. If you would invest  17,153  in Williams Sonoma on November 28, 2024 and sell it today you would earn a total of  2,483  from holding Williams Sonoma or generate 14.48% return on investment over 90 days.

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

RH  vs.  Williams Sonoma

RH

Risk-Adjusted Performance

Very Weak

Over the last 90 days RH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Williams Sonoma

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Sonoma are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Williams Sonoma displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RH and Williams Sonoma

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

The idea behind RH and Williams Sonoma 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.