Correlation Between Wesfarmers and Aarons

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

Diversification Opportunities for Wesfarmers and Aarons

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Wesfarmers and Aarons is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wesfarmers Limited and Aarons Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons Inc and Wesfarmers 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 Wesfarmers Limited are associated (or correlated) with Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons Inc has no effect on the direction of Wesfarmers i.e., Wesfarmers and Aarons go up and down completely randomly.

Pair Corralation between Wesfarmers and Aarons

Assuming the 90 days horizon Wesfarmers Limited is expected to under-perform the Aarons. But the otc pink sheet apears to be less risky and, when comparing its historical volatility, Wesfarmers Limited is 2.66 times less risky than Aarons. The otc pink sheet trades about -0.01 of its potential returns per unit of risk. The Aarons Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,735  in Aarons Inc on September 3, 2022 and sell it today you would lose (513.00)  from holding Aarons Inc or give up 29.57% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Wesfarmers Limited  vs.  Aarons Inc

 Performance (%) 
       Timeline  
Wesfarmers Limited 
Wesfarmers Performance
0 of 100
Over the last 90 days Wesfarmers Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Wesfarmers Price Channel

Aarons Inc 
Aarons Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aarons Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Aarons disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aarons Price Channel

Wesfarmers and Aarons Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wesfarmers and Aarons

The main advantage of trading using opposite Wesfarmers and Aarons positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wesfarmers position performs unexpectedly, Aarons 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 Aarons will offset losses from the drop in Aarons' long position.
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The idea behind Wesfarmers Limited and Aarons 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.
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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