Correlation Between Steven Madden and Big Tree

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

By analyzing existing cross correlation between Steven Madden and Big Tree Cloud, you can compare the effects of market volatilities on Steven Madden and Big Tree 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 Big Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steven Madden and Big Tree.

Diversification Opportunities for Steven Madden and Big Tree

0.11

Correlation Coefficient

Steven Madden  Big Tree

Average diversification

The 3 months correlation between Steven and Big is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden and Big Tree Cloud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Tree Cloud 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 Big Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Tree Cloud has no effect on the direction of Steven Madden i.e., Steven Madden and Big Tree go up and down completely randomly.

Pair Corralation between Steven Madden and Big Tree

Given the investment horizon of 90 days Steven Madden is expected to under-perform the Big Tree. But the stock apears to be less risky and, when comparing its historical volatility, Steven Madden is 7.21 times less risky than Big Tree. The stock trades about -0.03 of its potential returns per unit of risk. The Big Tree Cloud is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4.15  in Big Tree Cloud on September 15, 2024 and sell it today you would lose (1.16) from holding Big Tree Cloud or give up 27.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Steven Madden  vs.  Big Tree Cloud

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steven Madden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Big Tree Cloud

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Tree Cloud are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Big Tree showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steven Madden and Big Tree

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

The idea behind Steven Madden and Big Tree Cloud 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.