Correlation Between We Buy and Exxaro Resources

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

By analyzing existing cross correlation between We Buy Cars and Exxaro Resources, you can compare the effects of market volatilities on We Buy and Exxaro Resources 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 We Buy with a short position of Exxaro Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of We Buy and Exxaro Resources.

Diversification Opportunities for We Buy and Exxaro Resources

-0.17

Correlation Coefficient

We Buy  Exxaro Resources

Good diversification

The 3 months correlation between WBC and Exxaro is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding We Buy Cars and Exxaro Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxaro Resources and We Buy 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 We Buy Cars are associated (or correlated) with Exxaro Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxaro Resources has no effect on the direction of We Buy i.e., We Buy and Exxaro Resources go up and down completely randomly.

Pair Corralation between We Buy and Exxaro Resources

Assuming the 90 days trading horizon We Buy Cars is expected to generate 1.23 times more return on investment than Exxaro Resources. However, We Buy is 1.23 times more volatile than Exxaro Resources. It trades about 0.26 of its potential returns per unit of risk. Exxaro Resources is currently generating about -0.06 per unit of risk. If you would invest  322,736  in We Buy Cars on October 12, 2024 and sell it today you would earn a total of  116,164  from holding We Buy Cars or generate 35.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

We Buy Cars  vs.  Exxaro Resources

We Buy Cars

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in We Buy Cars are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, We Buy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Exxaro Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxaro Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with We Buy and Exxaro Resources

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

The idea behind We Buy Cars and Exxaro Resources 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 Stocks Directory module to find actively traded stocks across global markets.