Correlation Between Wesfarmers and Toys R

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

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

Diversification Opportunities for Wesfarmers and Toys R

-0.51

Correlation Coefficient

Wesfarmers  Toys R

Excellent diversification

The 3 months correlation between Wesfarmers and Toys is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers and Toys R Us in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toys R Us 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 Toys R. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toys R Us has no effect on the direction of Wesfarmers i.e., Wesfarmers and Toys R go up and down completely randomly.

Pair Corralation between Wesfarmers and Toys R

Assuming the 90 days trading horizon Wesfarmers is expected to generate 0.2 times more return on investment than Toys R. However, Wesfarmers is 5.12 times less risky than Toys R. It trades about 0.09 of its potential returns per unit of risk. Toys R Us is currently generating about 0.01 per unit of risk. If you would invest  5,649  in Wesfarmers on October 7, 2024 and sell it today you would earn a total of  1,532  from holding Wesfarmers or generate 27.12% return on investment over 90 days.

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

Wesfarmers  vs.  Toys R Us

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.

Toys R Us

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toys R Us has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Wesfarmers and Toys R

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

The idea behind Wesfarmers and Toys R Us 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.