Correlation Between Gap and Nordstrom
Can any of the company-specific risk be diversified away by investing in both Gap and Nordstrom 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 Gap and Nordstrom into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gap Inc and Nordstrom, you can compare the effects of market volatilities on Gap and Nordstrom 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 Gap with a short position of Nordstrom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap and Nordstrom.
Diversification Opportunities for Gap and Nordstrom
Good diversification
The 3 months correlation between Gap and Nordstrom is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc and Nordstrom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordstrom and Gap 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 Gap Inc are associated (or correlated) with Nordstrom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordstrom has no effect on the direction of Gap i.e., Gap and Nordstrom go up and down completely randomly.
Pair Corralation between Gap and Nordstrom
Considering the 90-day investment horizon Gap Inc is expected to under-perform the Nordstrom. But the stock apears to be less risky and, when comparing its historical volatility, Gap Inc is 1.87 times less risky than Nordstrom. The stock trades about -0.78 of its potential returns per unit of risk. The Nordstrom is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,862 in Nordstrom on January 26, 2024 and sell it today you would earn a total of 64.00 from holding Nordstrom or generate 3.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Gap Inc vs. Nordstrom
Performance |
| Timeline |
| Gap Inc |
| Nordstrom |
Gap and Nordstrom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gap and Nordstrom
The main advantage of trading using opposite Gap and Nordstrom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gap position performs unexpectedly, Nordstrom 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 Nordstrom will offset losses from the drop in Nordstrom's long position.The idea behind Gap Inc and Nordstrom 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.| Nordstrom vs. Marks Spencer Group | Nordstrom vs. Marks and Spencer | Nordstrom vs. Dillards Capital Trust | Nordstrom vs. Companhia Brasileira de |
Check out your portfolio center.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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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