Correlation Between Wesfarmers and Richardson Electronics

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

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

Diversification Opportunities for Wesfarmers and Richardson Electronics

0.42

Correlation Coefficient

Wesfarmers  Richardson Electronics

Very weak diversification

The 3 months correlation between Wesfarmers and Richardson is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Limited and Richardson Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richardson Electronics 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 Richardson Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richardson Electronics has no effect on the direction of Wesfarmers i.e., Wesfarmers and Richardson Electronics go up and down completely randomly.

Pair Corralation between Wesfarmers and Richardson Electronics

Assuming the 90 days horizon Wesfarmers Limited is expected to generate 0.64 times more return on investment than Richardson Electronics. However, Wesfarmers Limited is 1.56 times less risky than Richardson Electronics. It trades about -0.1 of its potential returns per unit of risk. Richardson Electronics is currently generating about -0.11 per unit of risk. If you would invest  4,545  in Wesfarmers Limited on October 13, 2024 and sell it today you would lose (186.00) from holding Wesfarmers Limited or give up 4.09% of portfolio value over 90 days.

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

Wesfarmers Limited  vs.  Richardson Electronics

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.

Richardson Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Richardson Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Richardson Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Wesfarmers and Richardson Electronics

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

The idea behind Wesfarmers Limited and Richardson Electronics 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.