Correlation Between Steven Madden and Educational Development

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

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

Diversification Opportunities for Steven Madden and Educational Development

0.77

Correlation Coefficient

Steven Madden  Educational Development

Poor diversification

The 3 months correlation between Steven and Educational is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden and Educational Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Educational Development 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 Educational Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Educational Development has no effect on the direction of Steven Madden i.e., Steven Madden and Educational Development go up and down completely randomly.

Pair Corralation between Steven Madden and Educational Development

Given the investment horizon of 90 days Steven Madden is expected to generate 0.56 times more return on investment than Educational Development. However, Steven Madden is 1.77 times less risky than Educational Development. It trades about -0.09 of its potential returns per unit of risk. Educational Development is currently generating about -0.11 per unit of risk. If you would invest  4,788  in Steven Madden on September 22, 2024 and sell it today you would lose (505.00) from holding Steven Madden or give up 10.55% of portfolio value over 90 days.

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

Steven Madden  vs.  Educational Development

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 latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Educational Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Educational Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Steven Madden and Educational Development

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

The idea behind Steven Madden and Educational Development 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.