Correlation Between We Buy and Famous Brands

Can any of the company-specific risk be diversified away by investing in both We Buy and Famous Brands 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 Famous Brands 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 Famous Brands, you can compare the effects of market volatilities on We Buy and Famous Brands 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 Famous Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of We Buy and Famous Brands.

Diversification Opportunities for We Buy and Famous Brands

0.55

Correlation Coefficient

We Buy  Famous Brands

Very weak diversification

The 3 months correlation between WBC and Famous is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding We Buy Cars and Famous Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Famous Brands 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 Famous Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Famous Brands has no effect on the direction of We Buy i.e., We Buy and Famous Brands go up and down completely randomly.

Pair Corralation between We Buy and Famous Brands

Assuming the 90 days trading horizon We Buy Cars is expected to generate 1.27 times more return on investment than Famous Brands. However, We Buy is 1.27 times more volatile than Famous Brands. It trades about 0.21 of its potential returns per unit of risk. Famous Brands is currently generating about 0.02 per unit of risk. If you would invest  202,891  in We Buy Cars on October 12, 2024 and sell it today you would earn a total of  239,209  from holding We Buy Cars or generate 117.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	38.37%
Values	Daily Returns

We Buy Cars  vs.  Famous Brands

We Buy Cars

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in We Buy Cars are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, We Buy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Famous Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Famous Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Famous Brands is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with We Buy and Famous Brands

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

The idea behind We Buy Cars and Famous Brands 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.