Correlation Between Wayfair and Sally Beauty

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

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

Diversification Opportunities for Wayfair and Sally Beauty

-0.01

Correlation Coefficient

Wayfair  Sally Beauty

Good diversification

The 3 months correlation between Wayfair and Sally is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Sally Beauty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sally Beauty Holdings and Wayfair 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 Wayfair are associated (or correlated) with Sally Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sally Beauty Holdings has no effect on the direction of Wayfair i.e., Wayfair and Sally Beauty go up and down completely randomly.

Pair Corralation between Wayfair and Sally Beauty

Taking into account the 90-day investment horizon Wayfair is expected to generate 1.46 times more return on investment than Sally Beauty. However, Wayfair is 1.46 times more volatile than Sally Beauty Holdings. It trades about -0.05 of its potential returns per unit of risk. Sally Beauty Holdings is currently generating about -0.07 per unit of risk. If you would invest  5,403  in Wayfair on September 24, 2024 and sell it today you would lose (831.00) from holding Wayfair or give up 15.38% of portfolio value over 90 days.

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

Wayfair  vs.  Sally Beauty Holdings

Wayfair

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wayfair has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Sally Beauty Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sally Beauty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Wayfair and Sally Beauty

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

The idea behind Wayfair and Sally Beauty Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.