Correlation Between Ross Stores and Wabash National

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

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

Diversification Opportunities for Ross Stores and Wabash National

0.6

Correlation Coefficient

Ross Stores  Wabash National

Poor diversification

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

Pair Corralation between Ross Stores and Wabash National

Assuming the 90 days trading horizon Ross Stores is expected to generate 0.67 times more return on investment than Wabash National. However, Ross Stores is 1.49 times less risky than Wabash National. It trades about 0.08 of its potential returns per unit of risk. Wabash National is currently generating about -0.02 per unit of risk. If you would invest  10,519  in Ross Stores on October 5, 2024 and sell it today you would earn a total of  4,515  from holding Ross Stores or generate 42.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.68%
Values	Daily Returns

Ross Stores  vs.  Wabash National

Ross Stores

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ross Stores unveiled solid returns over the last few months and may actually be approaching a breakup point.

Wabash National

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Ross Stores and Wabash National

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

The idea behind Ross Stores and Wabash National 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.