Correlation Between Wayfair and Emerge Commerce

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

By analyzing existing cross correlation between Wayfair and Emerge Commerce, you can compare the effects of market volatilities on Wayfair and Emerge Commerce 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 Emerge Commerce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Emerge Commerce.

Diversification Opportunities for Wayfair and Emerge Commerce

0.28

Correlation Coefficient

Wayfair  Emerge Commerce

Modest diversification

The 3 months correlation between Wayfair and Emerge is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Emerge Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerge Commerce 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 Emerge Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerge Commerce has no effect on the direction of Wayfair i.e., Wayfair and Emerge Commerce go up and down completely randomly.

Pair Corralation between Wayfair and Emerge Commerce

Taking into account the 90-day investment horizon Wayfair is expected to under-perform the Emerge Commerce. But the stock apears to be less risky and, when comparing its historical volatility, Wayfair is 9.11 times less risky than Emerge Commerce. The stock trades about -0.07 of its potential returns per unit of risk. The Emerge Commerce is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2.51  in Emerge Commerce on December 28, 2024 and sell it today you would earn a total of  1.49  from holding Emerge Commerce or generate 59.36% return on investment over 90 days.

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

Wayfair  vs.  Emerge Commerce

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 unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Emerge Commerce

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerge Commerce are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent primary indicators, Emerge Commerce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wayfair and Emerge Commerce

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

The idea behind Wayfair and Emerge Commerce 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.

Check out your portfolio center.

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.