Correlation Between Maple Leaf and Gildan Activewear

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

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

Diversification Opportunities for Maple Leaf and Gildan Activewear

0.33

Correlation Coefficient

Maple Leaf  Gildan Activewear

Weak diversification

The 3 months correlation between Maple and Gildan is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Gildan Activewear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gildan Activewear and Maple Leaf 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 Maple Leaf Foods are associated (or correlated) with Gildan Activewear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gildan Activewear has no effect on the direction of Maple Leaf i.e., Maple Leaf and Gildan Activewear go up and down completely randomly.

Pair Corralation between Maple Leaf and Gildan Activewear

Assuming the 90 days trading horizon Maple Leaf is expected to generate 1.99 times less return on investment than Gildan Activewear. In addition to that, Maple Leaf is 1.92 times more volatile than Gildan Activewear. It trades about 0.07 of its total potential returns per unit of risk. Gildan Activewear is currently generating about 0.26 per unit of volatility. If you would invest  6,339  in Gildan Activewear on August 31, 2024 and sell it today you would earn a total of  641.00  from holding Gildan Activewear or generate 10.11% return on investment over 90 days.

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

Maple Leaf Foods  vs.  Gildan Activewear

Maple Leaf Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Maple Leaf Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Maple Leaf is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Gildan Activewear

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gildan Activewear are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, Gildan Activewear displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maple Leaf and Gildan Activewear

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

The idea behind Maple Leaf Foods and Gildan Activewear 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.