Correlation Between Gap and Sally Beauty

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

By analyzing existing cross correlation between Gap Inc and Sally Beauty Holdings, you can compare the effects of market volatilities on Gap and Sally Beauty 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 Sally Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap and Sally Beauty.

Diversification Opportunities for Gap and Sally Beauty

0.13

Correlation Coefficient

Gap  Sally Beauty

Average diversification

The 3 months correlation between Gap and Sally is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc and Sally Beauty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sally Beauty Holdings 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 Sally Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sally Beauty Holdings has no effect on the direction of Gap i.e., Gap and Sally Beauty go up and down completely randomly.

Pair Corralation between Gap and Sally Beauty

Considering the 90-day investment horizon Gap Inc is expected to generate 1.01 times more return on investment than Sally Beauty. However, Gap is 1.01 times more volatile than Sally Beauty Holdings. It trades about 0.1 of its potential returns per unit of risk. Sally Beauty Holdings is currently generating about 0.0 per unit of risk. If you would invest  1,910  in Gap Inc on March 2, 2024 and sell it today you would earn a total of  342.00  from holding Gap Inc or generate 17.91% return on investment over 90 days.

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

Gap Inc  vs.  Sally Beauty Holdings

Gap Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gap Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Gap unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sally Beauty Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sally Beauty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Sally Beauty is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Gap and Sally Beauty

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

The idea behind Gap Inc and Sally Beauty 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.