Correlation Between Digital Brands and Capri Holdings

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

By analyzing existing cross correlation between Digital Brands Group and Capri Holdings, you can compare the effects of market volatilities on Digital Brands and Capri Holdings 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 Digital Brands with a short position of Capri Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital Brands and Capri Holdings.

Diversification Opportunities for Digital Brands and Capri Holdings

0.7

Correlation Coefficient

Digital Brands  Capri Holdings

Poor diversification

The 3 months correlation between Digital and Capri is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Digital Brands Group and Capri Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capri Holdings and Digital Brands 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 Digital Brands Group are associated (or correlated) with Capri Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capri Holdings has no effect on the direction of Digital Brands i.e., Digital Brands and Capri Holdings go up and down completely randomly.

Pair Corralation between Digital Brands and Capri Holdings

Given the investment horizon of 90 days Digital Brands Group is expected to under-perform the Capri Holdings. In addition to that, Digital Brands is 2.38 times more volatile than Capri Holdings. It trades about -0.11 of its total potential returns per unit of risk. Capri Holdings is currently generating about -0.1 per unit of volatility. If you would invest  3,989  in Capri Holdings on September 17, 2024 and sell it today you would lose (1,853) from holding Capri Holdings or give up 46.45% of portfolio value over 90 days.

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

Digital Brands Group  vs.  Capri Holdings

Digital Brands Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Brands Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Capri Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capri Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Digital Brands and Capri Holdings

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

The idea behind Digital Brands Group and Capri Holdings 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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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.