Correlation Between Designer Brands and Newell Brands

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

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

Diversification Opportunities for Designer Brands and Newell Brands

-0.47

Correlation Coefficient

Designer Brands  Newell Brands

Very good diversification

The 3 months correlation between Designer and Newell is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Newell Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newell Brands 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 Newell Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newell Brands has no effect on the direction of Designer Brands i.e., Designer Brands and Newell Brands go up and down completely randomly.

Pair Corralation between Designer Brands and Newell Brands

Considering the 90-day investment horizon Designer Brands is expected to generate 7.24 times less return on investment than Newell Brands. In addition to that, Designer Brands is 1.09 times more volatile than Newell Brands. It trades about 0.02 of its total potential returns per unit of risk. Newell Brands is currently generating about 0.18 per unit of volatility. If you would invest  777.00  in Newell Brands on September 13, 2024 and sell it today you would earn a total of  366.00  from holding Newell Brands or generate 47.1% return on investment over 90 days.

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

Designer Brands  vs.  Newell Brands

Designer Brands

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Designer Brands is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Newell Brands

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Newell Brands are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Newell Brands disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Designer Brands and Newell Brands

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

The idea behind Designer Brands and Newell Brands 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.