Correlation Between Wayfair and Amazon
Can any of the company-specific risk be diversified away by investing in both Wayfair and Amazon 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 Amazon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and Amazon Inc, you can compare the effects of market volatilities on Wayfair and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and Amazon.
Diversification Opportunities for Wayfair and Amazon
Poor diversification
The 3 months correlation between Wayfair and Amazon is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Wayfair i.e., Wayfair and Amazon go up and down completely randomly.
Pair Corralation between Wayfair and Amazon
Taking into account the 90-day investment horizon Wayfair is expected to under-perform the Amazon. In addition to that, Wayfair is 2.47 times more volatile than Amazon Inc. It trades about -0.3 of its total potential returns per unit of risk. Amazon Inc is currently generating about -0.07 per unit of volatility. If you would invest 17,815 in Amazon Inc on January 21, 2024 and sell it today you would lose (352.00) from holding Amazon Inc or give up 1.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. Amazon Inc
Performance |
| Timeline |
| Wayfair |
| Amazon Inc |
Wayfair and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and Amazon
The main advantage of trading using opposite Wayfair and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.The idea behind Wayfair and Amazon Inc 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.Check out your portfolio center.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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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