Correlation Between Deckers Outdoor and Good Vibrations

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

By analyzing existing cross correlation between Deckers Outdoor and Good Vibrations Shoes, you can compare the effects of market volatilities on Deckers Outdoor and Good Vibrations 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 Deckers Outdoor with a short position of Good Vibrations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deckers Outdoor and Good Vibrations.

Diversification Opportunities for Deckers Outdoor and Good Vibrations

0.67

Correlation Coefficient

Deckers Outdoor  Good Vibrations

Poor diversification

The 3 months correlation between Deckers and Good is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Deckers Outdoor and Good Vibrations Shoes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Good Vibrations Shoes and Deckers Outdoor 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 Deckers Outdoor are associated (or correlated) with Good Vibrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Good Vibrations Shoes has no effect on the direction of Deckers Outdoor i.e., Deckers Outdoor and Good Vibrations go up and down completely randomly.

Pair Corralation between Deckers Outdoor and Good Vibrations

Given the investment horizon of 90 days Deckers Outdoor is expected to generate 3.38 times less return on investment than Good Vibrations. But when comparing it to its historical volatility, Deckers Outdoor is 6.81 times less risky than Good Vibrations. It trades about 0.46 of its potential returns per unit of risk. Good Vibrations Shoes is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  0.22  in Good Vibrations Shoes on September 16, 2024 and sell it today you would earn a total of  0.12  from holding Good Vibrations Shoes or generate 54.55% return on investment over 90 days.

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

Deckers Outdoor  vs.  Good Vibrations Shoes

Deckers Outdoor

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, Deckers Outdoor disclosed solid returns over the last few months and may actually be approaching a breakup point.

Good Vibrations Shoes

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Good Vibrations Shoes are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Good Vibrations demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deckers Outdoor and Good Vibrations

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

The idea behind Deckers Outdoor and Good Vibrations Shoes 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.