Correlation Between Wayfair and Monotaro

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

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

Diversification Opportunities for Wayfair and Monotaro

-0.05

Correlation Coefficient

Wayfair  Monotaro

Good diversification

The 3 months correlation between Wayfair and Monotaro is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Monotaro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monotaro 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 Monotaro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monotaro has no effect on the direction of Wayfair i.e., Wayfair and Monotaro go up and down completely randomly.

Pair Corralation between Wayfair and Monotaro

Taking into account the 90-day investment horizon Wayfair is expected to generate 1.21 times more return on investment than Monotaro. However, Wayfair is 1.21 times more volatile than Monotaro Co. It trades about 0.07 of its potential returns per unit of risk. Monotaro Co is currently generating about 0.09 per unit of risk. If you would invest  4,090  in Wayfair on September 3, 2024 and sell it today you would earn a total of  534.00  from holding Wayfair or generate 13.06% return on investment over 90 days.

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

Wayfair  vs.  Monotaro Co

Wayfair

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.

Monotaro

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Monotaro Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Monotaro showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wayfair and Monotaro

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

The idea behind Wayfair and Monotaro Co 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.