Correlation Between Wesfarmers and Skycity Entertainment

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

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

Diversification Opportunities for Wesfarmers and Skycity Entertainment

0.35

Correlation Coefficient

Wesfarmers  Skycity Entertainment

Weak diversification

The 3 months correlation between Wesfarmers and Skycity is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Skycity Entertainment Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skycity Entertainment 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 Skycity Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skycity Entertainment has no effect on the direction of Wesfarmers i.e., Wesfarmers and Skycity Entertainment go up and down completely randomly.

Pair Corralation between Wesfarmers and Skycity Entertainment

Assuming the 90 days trading horizon Wesfarmers is expected to under-perform the Skycity Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Wesfarmers is 1.5 times less risky than Skycity Entertainment. The stock trades about -0.1 of its potential returns per unit of risk. The Skycity Entertainment Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  135.00  in Skycity Entertainment Group on October 4, 2024 and sell it today you would lose (4.00) from holding Skycity Entertainment Group or give up 2.96% of portfolio value over 90 days.

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

Wesfarmers  vs.  Skycity Entertainment Group

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.

Skycity Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Skycity Entertainment Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Skycity Entertainment 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 Skycity Entertainment

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

The idea behind Wesfarmers and Skycity Entertainment Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.