Correlation Between Williams Sonoma and Cotton

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

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

Diversification Opportunities for Williams Sonoma and Cotton

0.17

Correlation Coefficient

Williams Sonoma  Cotton

Average diversification

The 3 months correlation between Williams and Cotton is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Williams Sonoma and Cotton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotton and Williams Sonoma 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 Williams Sonoma are associated (or correlated) with Cotton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotton has no effect on the direction of Williams Sonoma i.e., Williams Sonoma and Cotton go up and down completely randomly.

Pair Corralation between Williams Sonoma and Cotton

Considering the 90-day investment horizon Williams Sonoma is expected to under-perform the Cotton. In addition to that, Williams Sonoma is 2.19 times more volatile than Cotton. It trades about -0.07 of its total potential returns per unit of risk. Cotton is currently generating about -0.03 per unit of volatility. If you would invest  6,848  in Cotton on December 29, 2024 and sell it today you would lose (159.00) from holding Cotton or give up 2.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Williams Sonoma  vs.  Cotton

Williams Sonoma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Williams Sonoma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Cotton

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Williams Sonoma and Cotton

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

The idea behind Williams Sonoma and Cotton 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.