Correlation Between Citi Trends and Wayfair

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

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

Diversification Opportunities for Citi Trends and Wayfair

0.13

Correlation Coefficient

Citi Trends  Wayfair

Average diversification

The 3 months correlation between Citi and Wayfair is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Citi Trends and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and Citi Trends 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 Citi Trends are associated (or correlated) with Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of Citi Trends i.e., Citi Trends and Wayfair go up and down completely randomly.

Pair Corralation between Citi Trends and Wayfair

Given the investment horizon of 90 days Citi Trends is expected to generate 0.59 times more return on investment than Wayfair. However, Citi Trends is 1.69 times less risky than Wayfair. It trades about -0.43 of its potential returns per unit of risk. Wayfair is currently generating about -0.28 per unit of risk. If you would invest  2,702  in Citi Trends on February 2, 2024 and sell it today you would lose (488.00) from holding Citi Trends or give up 18.06% of portfolio value over 90 days.

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

Citi Trends  vs.  Wayfair

Citi Trends

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citi Trends has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

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.

Pair Trading with Citi Trends and Wayfair

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

The idea behind Citi Trends and Wayfair 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.