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

0.65

Correlation Coefficient

Wayfair  Amazon

Poor diversification

The 3 months correlation between Wayfair and Amazon is 0.65. 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 3.5 times more volatile than Amazon Inc. It trades about -0.07 of its total potential returns per unit of risk. Amazon Inc is currently generating about 0.25 per unit of volatility. If you would invest  17,448  in Amazon Inc on January 17, 2024 and sell it today you would earn a total of  914.00  from holding Amazon Inc or generate 5.24% return on investment over 90 days.

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

Wayfair  vs.  Amazon Inc

Wayfair

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

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