Correlation Between Williams Sonoma and RH

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

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

Diversification Opportunities for Williams Sonoma and RH

0.67

Correlation Coefficient

Williams Sonoma  RH

Poor diversification

The 3 months correlation between Williams and RH is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Williams Sonoma and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH 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 RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of Williams Sonoma i.e., Williams Sonoma and RH go up and down completely randomly.

Pair Corralation between Williams Sonoma and RH

Considering the 90-day investment horizon Williams Sonoma is expected to generate 1.46 times less return on investment than RH. In addition to that, Williams Sonoma is 1.04 times more volatile than RH. It trades about 0.13 of its total potential returns per unit of risk. RH is currently generating about 0.19 per unit of volatility. If you would invest  25,168  in RH on September 1, 2024 and sell it today you would earn a total of  13,346  from holding RH or generate 53.03% return on investment over 90 days.

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

Williams Sonoma  vs.  RH

Williams Sonoma

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Sonoma are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Williams Sonoma displayed solid returns over the last few months and may actually be approaching a breakup point.

RH

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical indicators, RH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Williams Sonoma and RH

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

The idea behind Williams Sonoma and RH 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.