Correlation Between Best Buy and Winmark

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

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

Diversification Opportunities for Best Buy and Winmark

-0.78

Correlation Coefficient

Best Buy  Winmark

Pay attention - limited upside

The 3 months correlation between Best and Winmark is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Winmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Winmark and Best Buy 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 Best Buy Co are associated (or correlated) with Winmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Winmark has no effect on the direction of Best Buy i.e., Best Buy and Winmark go up and down completely randomly.

Pair Corralation between Best Buy and Winmark

Considering the 90-day investment horizon Best Buy Co is expected to under-perform the Winmark. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 1.22 times less risky than Winmark. The stock trades about -0.1 of its potential returns per unit of risk. The Winmark is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  35,448  in Winmark on September 16, 2024 and sell it today you would earn a total of  5,315  from holding Winmark or generate 14.99% return on investment over 90 days.

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

Best Buy Co  vs.  Winmark

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Winmark

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Winmark are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Winmark sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Best Buy and Winmark

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

The idea behind Best Buy Co and Winmark 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.