Correlation Between Wesfarmers and BOSTON BEER

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

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

Diversification Opportunities for Wesfarmers and BOSTON BEER

0.43

Correlation Coefficient

Wesfarmers  BOSTON BEER

Very weak diversification

The 3 months correlation between Wesfarmers and BOSTON is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Limited and BOSTON BEER A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BOSTON BEER A 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 Limited are associated (or correlated) with BOSTON BEER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BOSTON BEER A has no effect on the direction of Wesfarmers i.e., Wesfarmers and BOSTON BEER go up and down completely randomly.

Pair Corralation between Wesfarmers and BOSTON BEER

Assuming the 90 days horizon Wesfarmers Limited is expected to generate 1.15 times more return on investment than BOSTON BEER. However, Wesfarmers is 1.15 times more volatile than BOSTON BEER A . It trades about 0.09 of its potential returns per unit of risk. BOSTON BEER A is currently generating about 0.06 per unit of risk. If you would invest  4,114  in Wesfarmers Limited on October 7, 2024 and sell it today you would earn a total of  214.00  from holding Wesfarmers Limited or generate 5.2% return on investment over 90 days.

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

Wesfarmers Limited  vs.  BOSTON BEER A

Wesfarmers Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wesfarmers Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Wesfarmers is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BOSTON BEER A

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, BOSTON BEER exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wesfarmers and BOSTON BEER

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

The idea behind Wesfarmers Limited and BOSTON BEER A 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.