Correlation Between Wayfair and Sleep Number

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

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

Diversification Opportunities for Wayfair and Sleep Number

0.71

Correlation Coefficient

Wayfair  Sleep Number

Poor diversification

The 3 months correlation between Wayfair and Sleep is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Sleep Number Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sleep Number Corp 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 Sleep Number. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sleep Number Corp has no effect on the direction of Wayfair i.e., Wayfair and Sleep Number go up and down completely randomly.

Pair Corralation between Wayfair and Sleep Number

Taking into account the 90-day investment horizon Wayfair is expected to generate 0.7 times more return on investment than Sleep Number. However, Wayfair is 1.44 times less risky than Sleep Number. It trades about 0.0 of its potential returns per unit of risk. Sleep Number Corp is currently generating about 0.0 per unit of risk. If you would invest  7,078  in Wayfair on September 12, 2024 and sell it today you would lose (1,609) from holding Wayfair or give up 22.73% of portfolio value over 90 days.

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

Wayfair  vs.  Sleep Number Corp

Wayfair

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 7 (%) 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.

Sleep Number Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sleep Number Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, Sleep Number reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wayfair and Sleep Number

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

The idea behind Wayfair and Sleep Number Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.