Correlation Between ASOS Plc and Wayfair
Can any of the company-specific risk be diversified away by investing in both ASOS Plc and Wayfair 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 ASOS Plc and Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ASOS plc PK and Wayfair, you can compare the effects of market volatilities on ASOS Plc and Wayfair 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 ASOS Plc with a short position of Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASOS Plc and Wayfair.
Diversification Opportunities for ASOS Plc and Wayfair
Poor diversification
The 3 months correlation between ASOS and Wayfair is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding ASOS plc PK and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and ASOS Plc 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 ASOS plc PK are associated (or correlated) with Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of ASOS Plc i.e., ASOS Plc and Wayfair go up and down completely randomly.
Pair Corralation between ASOS Plc and Wayfair
Assuming the 90 days horizon ASOS Plc is expected to generate 17.77 times less return on investment than Wayfair. But when comparing it to its historical volatility, ASOS plc PK is 2.33 times less risky than Wayfair. It trades about 0.06 of its potential returns per unit of risk. Wayfair is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 3,885 in Wayfair on September 9, 2024 and sell it today you would earn a total of 1,468 from holding Wayfair or generate 37.79% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
ASOS plc PK vs. Wayfair
Performance |
Timeline |
ASOS plc PK |
Wayfair |
ASOS Plc and Wayfair Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with ASOS Plc and Wayfair
The main advantage of trading using opposite ASOS Plc and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASOS Plc position performs unexpectedly, Wayfair 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 Wayfair will offset losses from the drop in Wayfair's long position.The idea behind ASOS plc PK and Wayfair 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.Check out your portfolio center.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 Global Correlations module to find global opportunities by holding instruments from different markets.
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