Correlation Between Steven Madden and Century Communities

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

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

Diversification Opportunities for Steven Madden and Century Communities

0.72

Correlation Coefficient

Steven Madden  Century Communities

Poor diversification

The 3 months correlation between Steven and Century is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden and Century Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Communities and Steven Madden 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 Steven Madden are associated (or correlated) with Century Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Communities has no effect on the direction of Steven Madden i.e., Steven Madden and Century Communities go up and down completely randomly.

Pair Corralation between Steven Madden and Century Communities

Given the investment horizon of 90 days Steven Madden is expected to generate 0.81 times more return on investment than Century Communities. However, Steven Madden is 1.24 times less risky than Century Communities. It trades about 0.05 of its potential returns per unit of risk. Century Communities is currently generating about -0.03 per unit of risk. If you would invest  4,431  in Steven Madden on September 3, 2024 and sell it today you would earn a total of  187.00  from holding Steven Madden or generate 4.22% return on investment over 90 days.

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

Steven Madden  vs.  Century Communities

Steven Madden

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Steven Madden are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Century Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Century Communities is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Steven Madden and Century Communities

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

The idea behind Steven Madden and Century Communities 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.