Correlation Between EBay and Wayfair
Can any of the company-specific risk be diversified away by investing in both EBay 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 EBay and Wayfair into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between eBay Inc and Wayfair, you can compare the effects of market volatilities on EBay 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 EBay with a short position of Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of EBay and Wayfair.
Diversification Opportunities for EBay and Wayfair
Very poor diversification
The 3 months correlation between EBay and Wayfair is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding eBay Inc and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair and EBay 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 eBay Inc 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 EBay i.e., EBay and Wayfair go up and down completely randomly.
Pair Corralation between EBay and Wayfair
Given the investment horizon of 90 days eBay Inc is expected to generate 0.49 times more return on investment than Wayfair. However, eBay Inc is 2.06 times less risky than Wayfair. It trades about 0.24 of its potential returns per unit of risk. Wayfair is currently generating about 0.08 per unit of risk. If you would invest 4,365 in eBay Inc on January 25, 2024 and sell it today you would earn a total of 760.00 from holding eBay Inc or generate 17.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
eBay Inc vs. Wayfair
Performance |
| Timeline |
| eBay Inc |
| Wayfair |
EBay and Wayfair Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EBay and Wayfair
The main advantage of trading using opposite EBay and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EBay 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 eBay Inc 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.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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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