Correlation Between Sea and Wayfair

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

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

Diversification Opportunities for Sea and Wayfair

0.58

Correlation Coefficient

Sea  Wayfair

Very weak diversification

The 3 months correlation between Sea and Wayfair is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and Sea 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 Sea 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 Sea i.e., Sea and Wayfair go up and down completely randomly.

Pair Corralation between Sea and Wayfair

Allowing for the 90-day total investment horizon Sea is expected to generate 0.88 times more return on investment than Wayfair. However, Sea is 1.14 times less risky than Wayfair. It trades about 0.28 of its potential returns per unit of risk. Wayfair is currently generating about -0.3 per unit of risk. If you would invest  5,302  in Sea on January 30, 2024 and sell it today you would earn a total of  984.00  from holding Sea or generate 18.56% return on investment over 90 days.

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

Sea  vs.  Wayfair

Sea

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Wayfair

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Wayfair is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Sea and Wayfair

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

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.