Correlation Between Wayfair and ASOS Plc

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

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

Diversification Opportunities for Wayfair and ASOS Plc

-0.39

Correlation Coefficient

Wayfair  ASOS Plc

Very good diversification

The 3 months correlation between Wayfair and ASOS is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and ASOS Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASOS Plc 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 ASOS Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASOS Plc has no effect on the direction of Wayfair i.e., Wayfair and ASOS Plc go up and down completely randomly.

Pair Corralation between Wayfair and ASOS Plc

Taking into account the 90-day investment horizon Wayfair is expected to generate 12.49 times less return on investment than ASOS Plc. In addition to that, Wayfair is 1.36 times more volatile than ASOS Plc. It trades about 0.0 of its total potential returns per unit of risk. ASOS Plc is currently generating about 0.07 per unit of volatility. If you would invest  441.00  in ASOS Plc on February 24, 2024 and sell it today you would earn a total of  38.00  from holding ASOS Plc or generate 8.62% return on investment over 90 days.

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

Wayfair  vs.  ASOS Plc

Wayfair

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 6 (%) 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.

ASOS Plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ASOS Plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, ASOS Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Wayfair and ASOS Plc

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

The idea behind Wayfair and ASOS Plc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.