Correlation Between Childrens Place and JD Sports

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

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

Diversification Opportunities for Childrens Place and JD Sports

-0.13

Correlation Coefficient

Childrens Place  JD Sports

Good diversification

The 3 months correlation between Childrens and JDDSF is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Childrens Place and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion and Childrens Place 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 Childrens Place are associated (or correlated) with JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Childrens Place i.e., Childrens Place and JD Sports go up and down completely randomly.

Pair Corralation between Childrens Place and JD Sports

Given the investment horizon of 90 days Childrens Place is expected to generate 3.92 times more return on investment than JD Sports. However, Childrens Place is 3.92 times more volatile than JD Sports Fashion. It trades about 0.02 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.02 per unit of risk. If you would invest  2,838  in Childrens Place on September 12, 2024 and sell it today you would lose (1,424) from holding Childrens Place or give up 50.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.72%
Values	Daily Returns

Childrens Place  vs.  JD Sports Fashion

Childrens Place

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Childrens Place are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Childrens Place exhibited solid returns over the last few months and may actually be approaching a breakup point.

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD Sports is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Childrens Place and JD Sports

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

The idea behind Childrens Place and JD Sports Fashion 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.