Correlation Between Wayfair and Dillards

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

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

Diversification Opportunities for Wayfair and Dillards

0.54

Correlation Coefficient

Wayfair  Dillards

Very weak diversification

The 3 months correlation between Wayfair and Dillards is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Dillards in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dillards 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 Dillards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dillards has no effect on the direction of Wayfair i.e., Wayfair and Dillards go up and down completely randomly.

Pair Corralation between Wayfair and Dillards

Taking into account the 90-day investment horizon Wayfair is expected to generate 2.0 times more return on investment than Dillards. However, Wayfair is 2.0 times more volatile than Dillards. It trades about 0.05 of its potential returns per unit of risk. Dillards is currently generating about 0.06 per unit of risk. If you would invest  3,027  in Wayfair on February 1, 2024 and sell it today you would earn a total of  1,988  from holding Wayfair or generate 65.68% return on investment over 90 days.

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

Wayfair  vs.  Dillards

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.

Dillards

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dillards are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Dillards unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wayfair and Dillards

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

The idea behind Wayfair and Dillards 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.