Correlation Between Wesfarmers and BSA

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

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

Diversification Opportunities for Wesfarmers and BSA

-0.13

Correlation Coefficient

Wesfarmers  BSA

Good diversification

The 3 months correlation between Wesfarmers and BSA is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and BSA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BSA 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 BSA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BSA has no effect on the direction of Wesfarmers i.e., Wesfarmers and BSA go up and down completely randomly.

Pair Corralation between Wesfarmers and BSA

Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.83 times more return on investment than BSA. However, Wesfarmers is 1.21 times less risky than BSA. It trades about -0.05 of its potential returns per unit of risk. BSA is currently generating about -0.12 per unit of risk. If you would invest  7,092  in Wesfarmers on September 23, 2024 and sell it today you would lose (136.00) from holding Wesfarmers or give up 1.92% of portfolio value over 90 days.

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

Wesfarmers  vs.  BSA

Wesfarmers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesfarmers has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

BSA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BSA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BSA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wesfarmers and BSA

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

The idea behind Wesfarmers and BSA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.