Correlation Between Wesfarmers and Lowes Companies

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

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

Diversification Opportunities for Wesfarmers and Lowes Companies

0.52

Correlation Coefficient

Wesfarmers  Lowes Companies

Very weak diversification

The 3 months correlation between Wesfarmers and Lowes is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Limited and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies 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 Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Wesfarmers i.e., Wesfarmers and Lowes Companies go up and down completely randomly.

Pair Corralation between Wesfarmers and Lowes Companies

Assuming the 90 days horizon Wesfarmers Limited is expected to under-perform the Lowes Companies. In addition to that, Wesfarmers is 1.43 times more volatile than Lowes Companies. It trades about -0.09 of its total potential returns per unit of risk. Lowes Companies is currently generating about -0.11 per unit of volatility. If you would invest  24,835  in Lowes Companies on September 22, 2024 and sell it today you would lose (835.00) from holding Lowes Companies or give up 3.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Wesfarmers Limited  vs.  Lowes Companies

Wesfarmers Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesfarmers Limited has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Lowes Companies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lowes Companies is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Wesfarmers and Lowes Companies

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

The idea behind Wesfarmers Limited and Lowes Companies 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.