Correlation Between Shoe Carnival and Wayfair

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

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

Diversification Opportunities for Shoe Carnival and Wayfair

0.67

Correlation Coefficient

Shoe Carnival  Wayfair

Poor diversification

The 3 months correlation between Shoe and Wayfair is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shoe Carnival and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and Shoe Carnival 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 Shoe Carnival 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 Shoe Carnival i.e., Shoe Carnival and Wayfair go up and down completely randomly.

Pair Corralation between Shoe Carnival and Wayfair

Given the investment horizon of 90 days Shoe Carnival is expected to generate 0.54 times more return on investment than Wayfair. However, Shoe Carnival is 1.84 times less risky than Wayfair. It trades about 0.19 of its potential returns per unit of risk. Wayfair is currently generating about 0.07 per unit of risk. If you would invest  2,618  in Shoe Carnival on February 2, 2024 and sell it today you would earn a total of  752.00  from holding Shoe Carnival or generate 28.72% return on investment over 90 days.

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

Shoe Carnival  vs.  Wayfair

Shoe Carnival

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shoe Carnival are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shoe Carnival disclosed solid returns over the last few months and may actually be approaching a breakup point.

Wayfair

Risk-Adjusted Performance

5 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shoe Carnival and Wayfair

The main advantage of trading using opposite Shoe Carnival and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shoe Carnival 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 Shoe Carnival 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.