Correlation Between Wesfarmers and Wesfarmers

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

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

Diversification Opportunities for Wesfarmers and Wesfarmers

-0.37

Correlation Coefficient

Wesfarmers  Wesfarmers

Very good diversification

The 3 months correlation between Wesfarmers and Wesfarmers is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Limited and Wesfarmers Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers ADR 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 Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers ADR has no effect on the direction of Wesfarmers i.e., Wesfarmers and Wesfarmers go up and down completely randomly.

Pair Corralation between Wesfarmers and Wesfarmers

Assuming the 90 days horizon Wesfarmers Limited is expected to generate 0.52 times more return on investment than Wesfarmers. However, Wesfarmers Limited is 1.91 times less risky than Wesfarmers. It trades about 0.09 of its potential returns per unit of risk. Wesfarmers Ltd ADR is currently generating about 0.04 per unit of risk. If you would invest  4,314  in Wesfarmers Limited on September 3, 2024 and sell it today you would earn a total of  331.00  from holding Wesfarmers Limited or generate 7.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	62.05%
Values	Daily Returns

Wesfarmers Limited  vs.  Wesfarmers Ltd ADR

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 technical and fundamental indicators, Wesfarmers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Wesfarmers ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesfarmers Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wesfarmers and Wesfarmers

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

The idea behind Wesfarmers Limited and Wesfarmers Ltd ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.