Correlation Between Tapestry and Capri Holdings

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

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

Diversification Opportunities for Tapestry and Capri Holdings

-0.73

Correlation Coefficient

Tapestry  Capri Holdings

Pay attention - limited upside

The 3 months correlation between Tapestry and Capri is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Tapestry and Capri Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capri Holdings and Tapestry 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 Tapestry are associated (or correlated) with Capri Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capri Holdings has no effect on the direction of Tapestry i.e., Tapestry and Capri Holdings go up and down completely randomly.

Pair Corralation between Tapestry and Capri Holdings

Considering the 90-day investment horizon Tapestry is expected to generate 0.41 times more return on investment than Capri Holdings. However, Tapestry is 2.42 times less risky than Capri Holdings. It trades about 0.25 of its potential returns per unit of risk. Capri Holdings is currently generating about -0.05 per unit of risk. If you would invest  4,122  in Tapestry on September 1, 2024 and sell it today you would earn a total of  2,106  from holding Tapestry or generate 51.09% return on investment over 90 days.

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

Tapestry  vs.  Capri Holdings

Tapestry

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tapestry are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Tapestry reported solid returns over the last few months and may actually be approaching a breakup point.

Capri Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capri Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Tapestry and Capri Holdings

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

The idea behind Tapestry and Capri Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.