Correlation Between Williams Sonoma and Five Below

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

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

Diversification Opportunities for Williams Sonoma and Five Below

0.47

Correlation Coefficient

Williams Sonoma  Five Below

Very weak diversification

The 3 months correlation between Williams and Five is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Williams Sonoma and Five Below in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Below 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 Five Below. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Below has no effect on the direction of Williams Sonoma i.e., Williams Sonoma and Five Below go up and down completely randomly.

Pair Corralation between Williams Sonoma and Five Below

Considering the 90-day investment horizon Williams Sonoma is expected to generate 0.83 times more return on investment than Five Below. However, Williams Sonoma is 1.21 times less risky than Five Below. It trades about -0.07 of its potential returns per unit of risk. Five Below is currently generating about -0.18 per unit of risk. If you would invest  18,598  in Williams Sonoma on December 29, 2024 and sell it today you would lose (2,156) from holding Williams Sonoma or give up 11.59% of portfolio value over 90 days.

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

Williams Sonoma  vs.  Five Below

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.

Five Below

Risk-Adjusted Performance

Very Weak

Over the last 90 days Five Below has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Williams Sonoma and Five Below

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

The idea behind Williams Sonoma and Five Below 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.