Correlation Between Wesfarmers and Pro Medicus

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

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

Diversification Opportunities for Wesfarmers and Pro Medicus

0.74

Correlation Coefficient

Wesfarmers  Pro Medicus

Poor diversification

The 3 months correlation between Wesfarmers and Pro is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Pro Medicus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pro Medicus 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 Pro Medicus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pro Medicus has no effect on the direction of Wesfarmers i.e., Wesfarmers and Pro Medicus go up and down completely randomly.

Pair Corralation between Wesfarmers and Pro Medicus

Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.54 times more return on investment than Pro Medicus. However, Wesfarmers is 1.86 times less risky than Pro Medicus. It trades about 0.05 of its potential returns per unit of risk. Pro Medicus is currently generating about 0.01 per unit of risk. If you would invest  7,265  in Wesfarmers on December 4, 2024 and sell it today you would earn a total of  237.00  from holding Wesfarmers or generate 3.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Wesfarmers  vs.  Pro Medicus

Wesfarmers

Risk-Adjusted Performance

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pro Medicus

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pro Medicus are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Pro Medicus is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Wesfarmers and Pro Medicus

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

The idea behind Wesfarmers and Pro Medicus 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.