Correlation Between Western Resources and Wolfden Resources

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

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

Diversification Opportunities for Western Resources and Wolfden Resources

-0.55

Correlation Coefficient

Western Resources  Wolfden Resources

Excellent diversification

The 3 months correlation between Western and Wolfden is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Western Resources Corp and Wolfden Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wolfden Resources and Western Resources 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 Western Resources Corp are associated (or correlated) with Wolfden Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wolfden Resources has no effect on the direction of Western Resources i.e., Western Resources and Wolfden Resources go up and down completely randomly.

Pair Corralation between Western Resources and Wolfden Resources

Assuming the 90 days horizon Western Resources Corp is expected to generate 2.47 times more return on investment than Wolfden Resources. However, Western Resources is 2.47 times more volatile than Wolfden Resources. It trades about 0.22 of its potential returns per unit of risk. Wolfden Resources is currently generating about 0.05 per unit of risk. If you would invest  2.00  in Western Resources Corp on December 4, 2024 and sell it today you would earn a total of  1.03  from holding Western Resources Corp or generate 51.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Western Resources Corp  vs.  Wolfden Resources

Western Resources Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Western Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Wolfden Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wolfden Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Wolfden Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Resources and Wolfden Resources

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

The idea behind Western Resources Corp and Wolfden Resources 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.