Correlation Between Designer Brands and Continental

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

By analyzing existing cross correlation between Designer Brands and Caleres, you can compare the effects of market volatilities on Designer Brands and Continental 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 Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Designer Brands and Continental.

Diversification Opportunities for Designer Brands and Continental

0.61

Correlation Coefficient

Designer Brands  Continental

Poor diversification

The 3 months correlation between Designer and Continental is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Caleres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental 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 Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental has no effect on the direction of Designer Brands i.e., Designer Brands and Continental go up and down completely randomly.

Pair Corralation between Designer Brands and Continental

Considering the 90-day investment horizon Designer Brands is expected to under-perform the Continental. In addition to that, Designer Brands is 1.46 times more volatile than Caleres. It trades about -0.01 of its total potential returns per unit of risk. Caleres is currently generating about 0.04 per unit of volatility. If you would invest  2,166  in Caleres on August 30, 2024 and sell it today you would earn a total of  997.00  from holding Caleres or generate 46.03% return on investment over 90 days.

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

Designer Brands  vs.  Caleres

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 abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Continental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caleres 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 basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Designer Brands and Continental

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

The idea behind Designer Brands and Caleres 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 the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.