Correlation Between Wayfair and OReilly Automotive
Can any of the company-specific risk be diversified away by investing in both Wayfair and OReilly Automotive 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 OReilly Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wayfair and OReilly Automotive, you can compare the effects of market volatilities on Wayfair and OReilly Automotive 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 OReilly Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wayfair and OReilly Automotive.
Diversification Opportunities for Wayfair and OReilly Automotive
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wayfair and OReilly is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Wayfair and OReilly Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OReilly Automotive 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 OReilly Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OReilly Automotive has no effect on the direction of Wayfair i.e., Wayfair and OReilly Automotive go up and down completely randomly.
Pair Corralation between Wayfair and OReilly Automotive
Taking into account the 90-day investment horizon Wayfair is expected to under-perform the OReilly Automotive. In addition to that, Wayfair is 3.17 times more volatile than OReilly Automotive. It trades about -0.12 of its total potential returns per unit of risk. OReilly Automotive is currently generating about -0.18 per unit of volatility. If you would invest 113,707 in OReilly Automotive on January 25, 2024 and sell it today you would lose (4,437) from holding OReilly Automotive or give up 3.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wayfair vs. OReilly Automotive
Performance |
| Timeline |
| Wayfair |
| OReilly Automotive |
Wayfair and OReilly Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wayfair and OReilly Automotive
The main advantage of trading using opposite Wayfair and OReilly Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wayfair position performs unexpectedly, OReilly Automotive 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 OReilly Automotive will offset losses from the drop in OReilly Automotive's long position.The idea behind Wayfair and OReilly Automotive 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.| OReilly Automotive vs. Target | OReilly Automotive vs. Lowes Companies | OReilly Automotive vs. Kohls Corp | OReilly Automotive vs. Gap Inc |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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