Correlation Between Wayfair and Group 1

Can any of the company-specific risk be diversified away by investing in both Wayfair and Group 1 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 Group 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wayfair and Group 1 Automotive, you can compare the effects of market volatilities on Wayfair and Group 1 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 Group 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Group 1.

Diversification Opportunities for Wayfair and Group 1

-0.26

Correlation Coefficient

Wayfair  Group 1

Very good diversification

The 3 months correlation between Wayfair and Group is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Group 1 Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Group 1 Automotive 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 Group 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Group 1 Automotive has no effect on the direction of Wayfair i.e., Wayfair and Group 1 go up and down completely randomly.

Pair Corralation between Wayfair and Group 1

Taking into account the 90-day investment horizon Wayfair is expected to under-perform the Group 1. In addition to that, Wayfair is 1.9 times more volatile than Group 1 Automotive. It trades about -0.05 of its total potential returns per unit of risk. Group 1 Automotive is currently generating about 0.1 per unit of volatility. If you would invest  38,181  in Group 1 Automotive on September 26, 2024 and sell it today you would earn a total of  4,437  from holding Group 1 Automotive or generate 11.62% return on investment over 90 days.

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

Wayfair  vs.  Group 1 Automotive

Wayfair

Risk-Adjusted Performance

0 of 100

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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Group 1 Automotive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Group 1 Automotive are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Group 1 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wayfair and Group 1

The main advantage of trading using opposite Wayfair and Group 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, Group 1 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 Group 1 will offset losses from the drop in Group 1's long position.

The idea behind Wayfair and Group 1 Automotive 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.