Correlation Between Farfetch and Etsy

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Can any of the company-specific risk be diversified away by investing in both Farfetch and Etsy 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 Farfetch and Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Farfetch Ltd Cl and Etsy Inc, you can compare the effects of market volatilities on Farfetch and Etsy 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 Farfetch with a short position of Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farfetch and Etsy.

Diversification Opportunities for Farfetch and Etsy

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Farfetch and Etsy is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Farfetch Ltd Cl and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc and Farfetch 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 Farfetch Ltd Cl are associated (or correlated) with Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Farfetch i.e., Farfetch and Etsy go up and down completely randomly.

Pair Corralation between Farfetch and Etsy

Given the investment horizon of 90 days Farfetch is expected to generate 1.53 times less return on investment than Etsy. In addition to that, Farfetch is 1.48 times more volatile than Etsy Inc. It trades about 0.13 of its total potential returns per unit of risk. Etsy Inc is currently generating about 0.3 per unit of volatility. If you would invest  7,161  in Etsy Inc on May 15, 2022 and sell it today you would earn a total of  4,830  from holding Etsy Inc or generate 67.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Farfetch Ltd Cl  vs.  Etsy Inc

 Performance (%) 
       Timeline  
Farfetch Ltd Cl 
Farfetch Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Farfetch Ltd Cl are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental indicators, Farfetch reported solid returns over the last few months and may actually be approaching a breakup point.

Farfetch Price Channel

Etsy Inc 
Etsy Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Etsy showed solid returns over the last few months and may actually be approaching a breakup point.

Etsy Price Channel

Farfetch and Etsy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Farfetch and Etsy

The main advantage of trading using opposite Farfetch and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farfetch position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.
The idea behind Farfetch Ltd Cl and Etsy Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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