Correlation Between Gap, and Sea

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

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

Diversification Opportunities for Gap, and Sea

0.84

Correlation Coefficient

Gap,  Sea

Very poor diversification

The 3 months correlation between Gap, and Sea is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding The Gap, and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea and Gap, 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 The Gap, are associated (or correlated) with Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Gap, i.e., Gap, and Sea go up and down completely randomly.

Pair Corralation between Gap, and Sea

Considering the 90-day investment horizon Gap, is expected to generate 1.06 times less return on investment than Sea. In addition to that, Gap, is 1.21 times more volatile than Sea. It trades about 0.11 of its total potential returns per unit of risk. Sea is currently generating about 0.14 per unit of volatility. If you would invest  9,067  in Sea on September 23, 2024 and sell it today you would earn a total of  1,997  from holding Sea or generate 22.02% return on investment over 90 days.

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

The Gap,  vs.  Sea

Gap,

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Gap, are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Gap, reported solid returns over the last few months and may actually be approaching a breakup point.

Sea

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gap, and Sea

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

The idea behind The Gap, and Sea 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.