Correlation Between Wayfair and Ollies Bargain

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

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

Diversification Opportunities for Wayfair and Ollies Bargain

-0.04

Correlation Coefficient

Wayfair  Ollies Bargain

Good diversification

The 3 months correlation between Wayfair and Ollies is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and Ollies Bargain Outlet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ollies Bargain Outlet 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 Ollies Bargain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ollies Bargain Outlet has no effect on the direction of Wayfair i.e., Wayfair and Ollies Bargain go up and down completely randomly.

Pair Corralation between Wayfair and Ollies Bargain

Taking into account the 90-day investment horizon Wayfair is expected to generate 2.17 times more return on investment than Ollies Bargain. However, Wayfair is 2.17 times more volatile than Ollies Bargain Outlet. It trades about 0.04 of its potential returns per unit of risk. Ollies Bargain Outlet is currently generating about 0.05 per unit of risk. If you would invest  5,081  in Wayfair on February 4, 2024 and sell it today you would earn a total of  1,278  from holding Wayfair or generate 25.15% return on investment over 90 days.

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

Wayfair  vs.  Ollies Bargain Outlet

Wayfair

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.

Ollies Bargain Outlet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ollies Bargain Outlet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Ollies Bargain is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Wayfair and Ollies Bargain

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

The idea behind Wayfair and Ollies Bargain Outlet 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.