Correlation Between Wayfair and JD

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

By analyzing existing cross correlation between Wayfair and JD Inc Adr, you can compare the effects of market volatilities on Wayfair and JD 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 JD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and JD.

Diversification Opportunities for Wayfair and JD

0.52

Correlation Coefficient

Wayfair  JD

Very weak diversification

The 3 months correlation between Wayfair and JD is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and JD Inc Adr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc Adr 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 JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc Adr has no effect on the direction of Wayfair i.e., Wayfair and JD go up and down completely randomly.

Pair Corralation between Wayfair and JD

Taking into account the 90-day investment horizon Wayfair is expected to generate 1.5 times more return on investment than JD. However, Wayfair is 1.5 times more volatile than JD Inc Adr. It trades about 0.01 of its potential returns per unit of risk. JD Inc Adr is currently generating about -0.05 per unit of risk. If you would invest  6,713  in Wayfair on January 29, 2024 and sell it today you would lose (1,512) from holding Wayfair or give up 22.52% of portfolio value over 90 days.

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

Wayfair  vs.  JD Inc Adr

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.

JD Inc Adr

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc Adr are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, JD exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wayfair and JD

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

The idea behind Wayfair and JD Inc Adr 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.