Correlation Between Wayfair and Liquidity Services

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

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

Diversification Opportunities for Wayfair and Liquidity Services

0.66

Correlation Coefficient

Wayfair  Liquidity Services

Poor diversification

The 3 months correlation between Wayfair and Liquidity is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Liquidity Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liquidity Services 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 Liquidity Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liquidity Services has no effect on the direction of Wayfair i.e., Wayfair and Liquidity Services go up and down completely randomly.

Pair Corralation between Wayfair and Liquidity Services

Taking into account the 90-day investment horizon Wayfair is expected to generate 3.53 times more return on investment than Liquidity Services. However, Wayfair is 3.53 times more volatile than Liquidity Services. It trades about 0.11 of its potential returns per unit of risk. Liquidity Services is currently generating about 0.06 per unit of risk. If you would invest  5,881  in Wayfair on February 8, 2024 and sell it today you would earn a total of  1,074  from holding Wayfair or generate 18.26% return on investment over 90 days.

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

Wayfair  vs.  Liquidity Services

Wayfair

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 10 (%) 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.

Liquidity Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liquidity Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Liquidity Services unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wayfair and Liquidity Services

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

The idea behind Wayfair and Liquidity Services 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.