Correlation Between Wayfair and EBay
Can any of the company-specific risk be diversified away by investing in both Wayfair and EBay 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 EBay into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and eBay Inc, you can compare the effects of market volatilities on Wayfair and EBay 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 EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and EBay.
Diversification Opportunities for Wayfair and EBay
Very poor diversification
The 3 months correlation between Wayfair and EBay is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Wayfair i.e., Wayfair and EBay go up and down completely randomly.
Pair Corralation between Wayfair and EBay
Taking into account the 90-day investment horizon Wayfair is expected to generate 2.48 times more return on investment than EBay. However, Wayfair is 2.48 times more volatile than eBay Inc. It trades about 0.07 of its potential returns per unit of risk. eBay Inc is currently generating about 0.12 per unit of risk. If you would invest 4,239 in Wayfair on January 20, 2024 and sell it today you would earn a total of 1,235 from holding Wayfair or generate 29.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. eBay Inc
Performance |
| Timeline |
| Wayfair |
| eBay Inc |
Wayfair and EBay Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and EBay
The main advantage of trading using opposite Wayfair and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.The idea behind Wayfair and eBay 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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