Correlation Between Five Below and Lands End
Can any of the company-specific risk be diversified away by investing in both Five Below and Lands End 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 Five Below and Lands End into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Five Below and Lands End, you can compare the effects of market volatilities on Five Below and Lands End 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 Five Below with a short position of Lands End. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Below and Lands End.
Diversification Opportunities for Five Below and Lands End
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Five and Lands is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Five Below and Lands End in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lands End and Five Below 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 Five Below are associated (or correlated) with Lands End. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lands End has no effect on the direction of Five Below i.e., Five Below and Lands End go up and down completely randomly.
Pair Corralation between Five Below and Lands End
Given the investment horizon of 90 days Five Below is expected to generate 5.39 times less return on investment than Lands End. But when comparing it to its historical volatility, Five Below is 1.77 times less risky than Lands End. It trades about 0.01 of its potential returns per unit of risk. Lands End is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,438 in Lands End on January 24, 2024 and sell it today you would lose (122.00) from holding Lands End or give up 8.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Below vs. Lands End
Performance |
| Timeline |
| Five Below |
| Lands End |
Five Below and Lands End Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Below and Lands End
The main advantage of trading using opposite Five Below and Lands End positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Below position performs unexpectedly, Lands End 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 Lands End will offset losses from the drop in Lands End's long position.The idea behind Five Below and Lands End 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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