Correlation Between Warby Parker and Baxter International

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

By analyzing existing cross correlation between Warby Parker and Baxter International, you can compare the effects of market volatilities on Warby Parker and Baxter International 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 Warby Parker with a short position of Baxter International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warby Parker and Baxter International.

Diversification Opportunities for Warby Parker and Baxter International

-0.92

Correlation Coefficient

Warby Parker  Baxter International

Pay attention - limited upside

The 3 months correlation between Warby and Baxter is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Warby Parker and Baxter International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baxter International and Warby Parker 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 Warby Parker are associated (or correlated) with Baxter International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baxter International has no effect on the direction of Warby Parker i.e., Warby Parker and Baxter International go up and down completely randomly.

Pair Corralation between Warby Parker and Baxter International

Given the investment horizon of 90 days Warby Parker is expected to generate 1.91 times more return on investment than Baxter International. However, Warby Parker is 1.91 times more volatile than Baxter International. It trades about 0.06 of its potential returns per unit of risk. Baxter International is currently generating about -0.02 per unit of risk. If you would invest  1,248  in Warby Parker on October 23, 2024 and sell it today you would earn a total of  1,210  from holding Warby Parker or generate 96.96% return on investment over 90 days.

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

Warby Parker  vs.  Baxter International

Warby Parker

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Warby Parker are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Warby Parker showed solid returns over the last few months and may actually be approaching a breakup point.

Baxter International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baxter International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Warby Parker and Baxter International

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

The idea behind Warby Parker and Baxter International 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 Valuation module to check real value of public entities based on technical and fundamental data.