Correlation Between Wayfair and Rakuten

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

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

Diversification Opportunities for Wayfair and Rakuten

0.03

Correlation Coefficient

Wayfair  Rakuten

Significant diversification

The 3 months correlation between Wayfair and Rakuten is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Rakuten Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rakuten Inc ADR 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 Rakuten. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rakuten Inc ADR has no effect on the direction of Wayfair i.e., Wayfair and Rakuten go up and down completely randomly.

Pair Corralation between Wayfair and Rakuten

Taking into account the 90-day investment horizon Wayfair is expected to under-perform the Rakuten. In addition to that, Wayfair is 1.64 times more volatile than Rakuten Inc ADR. It trades about -0.08 of its total potential returns per unit of risk. Rakuten Inc ADR is currently generating about 0.06 per unit of volatility. If you would invest  540.00  in Rakuten Inc ADR on December 28, 2024 and sell it today you would earn a total of  38.00  from holding Rakuten Inc ADR or generate 7.04% return on investment over 90 days.

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

Wayfair  vs.  Rakuten Inc ADR

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.

Rakuten Inc ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rakuten Inc ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Rakuten may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Wayfair and Rakuten

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

The idea behind Wayfair and Rakuten Inc ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.