Correlation Between Wesfarmers and Asara Resources

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

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

Diversification Opportunities for Wesfarmers and Asara Resources

0.41

Correlation Coefficient

Wesfarmers  Asara Resources

Very weak diversification

The 3 months correlation between Wesfarmers and Asara is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Asara Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asara Resources and Wesfarmers 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 Wesfarmers are associated (or correlated) with Asara Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asara Resources has no effect on the direction of Wesfarmers i.e., Wesfarmers and Asara Resources go up and down completely randomly.

Pair Corralation between Wesfarmers and Asara Resources

Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.25 times more return on investment than Asara Resources. However, Wesfarmers is 3.96 times less risky than Asara Resources. It trades about -0.09 of its potential returns per unit of risk. Asara Resources is currently generating about -0.19 per unit of risk. If you would invest  7,356  in Wesfarmers on October 5, 2024 and sell it today you would lose (214.00) from holding Wesfarmers or give up 2.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Wesfarmers  vs.  Asara Resources

Wesfarmers

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Asara Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Asara Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Asara Resources may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Wesfarmers and Asara Resources

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

The idea behind Wesfarmers and Asara 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.