Correlation Between Wesfarmers and Computershare

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

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

Diversification Opportunities for Wesfarmers and Computershare

0.48

Correlation Coefficient

Wesfarmers  Computershare

Very weak diversification

The 3 months correlation between Wesfarmers and Computershare is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Computershare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare 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 Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare has no effect on the direction of Wesfarmers i.e., Wesfarmers and Computershare go up and down completely randomly.

Pair Corralation between Wesfarmers and Computershare

Assuming the 90 days trading horizon Wesfarmers is expected to generate 2.4 times less return on investment than Computershare. But when comparing it to its historical volatility, Wesfarmers is 1.42 times less risky than Computershare. It trades about 0.1 of its potential returns per unit of risk. Computershare is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,803  in Computershare on September 5, 2024 and sell it today you would earn a total of  485.00  from holding Computershare or generate 17.3% return on investment over 90 days.

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

Wesfarmers  vs.  Computershare

Wesfarmers

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Wesfarmers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Computershare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Computershare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wesfarmers and Computershare

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

The idea behind Wesfarmers and Computershare 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.