Correlation Between Designer Brands and Alliance Entertainment

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

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

Diversification Opportunities for Designer Brands and Alliance Entertainment

-0.65

Correlation Coefficient

Designer Brands  Alliance Entertainment

Excellent diversification

The 3 months correlation between Designer and Alliance is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Alliance Entertainment Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Entertainment and Designer 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 Designer Brands are associated (or correlated) with Alliance Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Entertainment has no effect on the direction of Designer Brands i.e., Designer Brands and Alliance Entertainment go up and down completely randomly.

Pair Corralation between Designer Brands and Alliance Entertainment

Considering the 90-day investment horizon Designer Brands is expected to under-perform the Alliance Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Designer Brands is 1.77 times less risky than Alliance Entertainment. The stock trades about 0.0 of its potential returns per unit of risk. The Alliance Entertainment Holding is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,012  in Alliance Entertainment Holding on September 5, 2024 and sell it today you would lose (462.00) from holding Alliance Entertainment Holding or give up 45.65% of portfolio value over 90 days.

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

Designer Brands  vs.  Alliance Entertainment Holding

Designer Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Designer Brands is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Alliance Entertainment

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Entertainment Holding are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alliance Entertainment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Designer Brands and Alliance Entertainment

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

The idea behind Designer Brands and Alliance Entertainment Holding 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.