Correlation Between Wesfarmers and Suncorp

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

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

Diversification Opportunities for Wesfarmers and Suncorp

0.72

Correlation Coefficient

Wesfarmers  Suncorp

Poor diversification

The 3 months correlation between Wesfarmers and Suncorp is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Suncorp Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suncorp Group 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 Suncorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suncorp Group has no effect on the direction of Wesfarmers i.e., Wesfarmers and Suncorp go up and down completely randomly.

Pair Corralation between Wesfarmers and Suncorp

Assuming the 90 days trading horizon Wesfarmers is expected to generate 1.25 times more return on investment than Suncorp. However, Wesfarmers is 1.25 times more volatile than Suncorp Group. It trades about -0.05 of its potential returns per unit of risk. Suncorp Group is currently generating about -0.18 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 Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Wesfarmers  vs.  Suncorp Group

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.

Suncorp Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Suncorp Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Suncorp 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 Suncorp

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

The idea behind Wesfarmers and Suncorp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.