Correlation Between Floor Decor and Wayfair

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

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

Diversification Opportunities for Floor Decor and Wayfair

0.77

Correlation Coefficient

Floor Decor  Wayfair

Poor diversification

The 3 months correlation between Floor and Wayfair is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and Floor Decor 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 Floor Decor Holdings 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 Floor Decor i.e., Floor Decor and Wayfair go up and down completely randomly.

Pair Corralation between Floor Decor and Wayfair

Considering the 90-day investment horizon Floor Decor Holdings is expected to under-perform the Wayfair. But the stock apears to be less risky and, when comparing its historical volatility, Floor Decor Holdings is 1.58 times less risky than Wayfair. The stock trades about -0.02 of its potential returns per unit of risk. The Wayfair is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,803  in Wayfair on September 16, 2024 and sell it today you would earn a total of  426.00  from holding Wayfair or generate 8.87% return on investment over 90 days.

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

Floor Decor Holdings  vs.  Wayfair

Floor Decor Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Floor Decor Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Wayfair

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Floor Decor and Wayfair

The main advantage of trading using opposite Floor Decor and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floor Decor 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 Floor Decor Holdings 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.

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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 Stocks Directory module to find actively traded stocks across global markets.