Correlation Between Wayfair and Chewy

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

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

Diversification Opportunities for Wayfair and Chewy

0.73

Correlation Coefficient

Wayfair  Chewy

Poor diversification

The 3 months correlation between Wayfair and Chewy is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Chewy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chewy Inc and Wayfair 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 Wayfair 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 Wayfair i.e., Wayfair and Chewy go up and down completely randomly.

Pair Corralation between Wayfair and Chewy

Taking into account the 90-day investment horizon Wayfair is expected to under-perform the Chewy. In addition to that, Wayfair is 1.61 times more volatile than Chewy Inc. It trades about -0.04 of its total potential returns per unit of risk. Chewy Inc is currently generating about 0.0 per unit of volatility. If you would invest  3,407  in Chewy Inc on December 27, 2024 and sell it today you would lose (82.00) from holding Chewy Inc or give up 2.41% of portfolio value over 90 days.

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

Wayfair  vs.  Chewy Inc

Wayfair

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wayfair has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Chewy Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chewy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chewy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wayfair and Chewy

The main advantage of trading using opposite Wayfair and Chewy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair 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 Wayfair 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.