Correlation Between Rakuten and Chewy

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

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

Diversification Opportunities for Rakuten and Chewy

-0.37

Correlation Coefficient

Rakuten  Chewy

Very good diversification

The 3 months correlation between Rakuten and Chewy is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Rakuten Inc ADR and Chewy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chewy Inc and Rakuten 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 Rakuten Inc ADR are associated (or correlated) with Chewy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chewy Inc has no effect on the direction of Rakuten i.e., Rakuten and Chewy go up and down completely randomly.

Pair Corralation between Rakuten and Chewy

Assuming the 90 days horizon Rakuten Inc ADR is expected to under-perform the Chewy. In addition to that, Rakuten is 1.05 times more volatile than Chewy Inc. It trades about -0.11 of its total potential returns per unit of risk. Chewy Inc is currently generating about 0.15 per unit of volatility. If you would invest  2,616  in Chewy Inc on September 5, 2024 and sell it today you would earn a total of  746.00  from holding Chewy Inc or generate 28.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Rakuten Inc ADR  vs.  Chewy Inc

Rakuten Inc ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rakuten Inc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Chewy Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chewy Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Chewy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rakuten and Chewy

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

The idea behind Rakuten Inc ADR and Chewy Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.