Correlation Between Wesfarmers and Neurotech International

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

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

Diversification Opportunities for Wesfarmers and Neurotech International

0.29

Correlation Coefficient

Wesfarmers  Neurotech International

Modest diversification

The 3 months correlation between Wesfarmers and Neurotech is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Neurotech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neurotech International 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 Neurotech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neurotech International has no effect on the direction of Wesfarmers i.e., Wesfarmers and Neurotech International go up and down completely randomly.

Pair Corralation between Wesfarmers and Neurotech International

Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.24 times more return on investment than Neurotech International. However, Wesfarmers is 4.1 times less risky than Neurotech International. It trades about 0.08 of its potential returns per unit of risk. Neurotech International is currently generating about 0.01 per unit of risk. If you would invest  4,647  in Wesfarmers on October 23, 2024 and sell it today you would earn a total of  2,527  from holding Wesfarmers or generate 54.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

Wesfarmers  vs.  Neurotech International

Wesfarmers

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers are ranked lower than 3 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Neurotech International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Neurotech International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Neurotech International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Wesfarmers and Neurotech International

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

The idea behind Wesfarmers and Neurotech International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.