Correlation Between Wayfair and American Axle

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

By analyzing existing cross correlation between Wayfair and American Axle Manufacturing, you can compare the effects of market volatilities on Wayfair and American Axle 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 American Axle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and American Axle.

Diversification Opportunities for Wayfair and American Axle

-0.56

Correlation Coefficient

Wayfair  American Axle

Excellent diversification

The 3 months correlation between Wayfair and American is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa 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 American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of Wayfair i.e., Wayfair and American Axle go up and down completely randomly.

Pair Corralation between Wayfair and American Axle

Taking into account the 90-day investment horizon Wayfair is expected to under-perform the American Axle. In addition to that, Wayfair is 1.69 times more volatile than American Axle Manufacturing. It trades about -0.29 of its total potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.07 per unit of volatility. If you would invest  719.00  in American Axle Manufacturing on February 2, 2024 and sell it today you would earn a total of  20.00  from holding American Axle Manufacturing or generate 2.78% return on investment over 90 days.

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

Wayfair  vs.  American Axle Manufacturing

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 fairly stable basic indicators, Wayfair is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

American Axle Manufa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Axle Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Wayfair and American Axle

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

The idea behind Wayfair and American Axle Manufacturing 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.