Correlation Between Wesfarmers and Brambles

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

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

Diversification Opportunities for Wesfarmers and Brambles

0.57

Correlation Coefficient

Wesfarmers  Brambles

Very weak diversification

The 3 months correlation between Wesfarmers and Brambles is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Ltd ADR and Brambles Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brambles 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 Ltd ADR are associated (or correlated) with Brambles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brambles ADR has no effect on the direction of Wesfarmers i.e., Wesfarmers and Brambles go up and down completely randomly.

Pair Corralation between Wesfarmers and Brambles

Assuming the 90 days horizon Wesfarmers Ltd ADR is expected to generate 1.37 times more return on investment than Brambles. However, Wesfarmers is 1.37 times more volatile than Brambles Ltd ADR. It trades about -0.03 of its potential returns per unit of risk. Brambles Ltd ADR is currently generating about -0.06 per unit of risk. If you would invest  2,348  in Wesfarmers Ltd ADR on October 10, 2024 and sell it today you would lose (104.00) from holding Wesfarmers Ltd ADR or give up 4.43% of portfolio value over 90 days.

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

Wesfarmers Ltd ADR  vs.  Brambles Ltd ADR

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.

Brambles ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brambles Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Brambles 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 Brambles

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

The idea behind Wesfarmers Ltd ADR and Brambles 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.