Correlation Between SPORTING and Wesfarmers

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

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

Diversification Opportunities for SPORTING and Wesfarmers

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Correlation Coefficient

SPORTING  Wesfarmers

Pay attention - limited upside

The 3 months correlation between SPORTING and Wesfarmers is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding SPORTING and Wesfarmers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers Limited and SPORTING 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 SPORTING 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 SPORTING i.e., SPORTING and Wesfarmers go up and down completely randomly.

Pair Corralation between SPORTING and Wesfarmers

Assuming the 90 days trading horizon SPORTING is expected to generate 2.68 times less return on investment than Wesfarmers. In addition to that, SPORTING is 1.71 times more volatile than Wesfarmers Limited. It trades about 0.01 of its total potential returns per unit of risk. Wesfarmers Limited is currently generating about 0.07 per unit of volatility. If you would invest  2,889  in Wesfarmers Limited on October 23, 2024 and sell it today you would earn a total of  1,387  from holding Wesfarmers Limited or generate 48.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

SPORTING  vs.  Wesfarmers Limited

SPORTING

Risk-Adjusted Performance

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Very Weak

Over the last 90 days SPORTING has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Wesfarmers Limited

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPORTING and Wesfarmers

The main advantage of trading using opposite SPORTING and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPORTING 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 SPORTING 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.