Correlation Between Abercrombie Fitch and Designer Brands

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

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

Diversification Opportunities for Abercrombie Fitch and Designer Brands

0.55
  Correlation Coefficient
Abercrombie Fitch
Designer Brands

Very weak diversification

The 24 months correlation between Abercrombie and Designer is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Abercrombie Fitch and Designer Brands in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands and Abercrombie Fitch 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 Abercrombie Fitch are associated (or correlated) with Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Abercrombie Fitch i.e., Abercrombie Fitch and Designer Brands go up and down completely randomly.

Pair Corralation between Abercrombie Fitch and Designer Brands

Considering the 90-day investment horizon Abercrombie Fitch is expected to generate 5.69 times less return on investment than Designer Brands. But when comparing it to its historical volatility, Abercrombie Fitch is 5.82 times less risky than Designer Brands. It trades about 0.06 of its potential returns per unit of risk. Designer Brands is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,505  in Designer Brands on May 5, 2021 and sell it today you would lose (31.00)  from holding Designer Brands or give up 2.06% of portfolio value over 90 days.
Time Period24 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.2%
ValuesDaily Returns

Abercrombie Fitch  vs.  Designer Brands

 Performance (%) 
      Timeline 
Abercrombie Fitch 
 Abercrombie Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Abercrombie Fitch are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Abercrombie Fitch exhibited solid returns over the last few months and may actually be approaching a breakup point.

Abercrombie Price Channel

Designer Brands 
 Designer Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental drivers, Designer Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Designer Price Channel

Abercrombie Fitch and Designer Brands Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Abercrombie Fitch and Designer Brands

The main advantage of trading using opposite Abercrombie Fitch and Designer Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Abercrombie Fitch position performs unexpectedly, Designer Brands 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 Designer Brands will offset losses from the drop in Designer Brands' long position.
The idea behind Abercrombie Fitch and Designer Brands 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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