Correlation Between Carters and Abercrombie Fitch

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

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

Diversification Opportunities for Carters and Abercrombie Fitch

0.68

Correlation Coefficient

Carters  Abercrombie Fitch

Poor diversification

The 3 months correlation between Carters and Abercrombie is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Carters and Abercrombie Fitch in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abercrombie Fitch and Carters 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 Carters are associated (or correlated) with Abercrombie Fitch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abercrombie Fitch has no effect on the direction of Carters i.e., Carters and Abercrombie Fitch go up and down completely randomly.

Pair Corralation between Carters and Abercrombie Fitch

Considering the 90-day investment horizon Carters is expected to generate 4.54 times less return on investment than Abercrombie Fitch. But when comparing it to its historical volatility, Carters is 1.68 times less risky than Abercrombie Fitch. It trades about 0.08 of its potential returns per unit of risk. Abercrombie Fitch is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,872  in Abercrombie Fitch on January 25, 2024 and sell it today you would earn a total of  5,637  from holding Abercrombie Fitch or generate 96.0% return on investment over 90 days.

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

Carters  vs.  Abercrombie Fitch

Carters

Risk-Adjusted Performance

0 of 100

Very Weak

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

Abercrombie Fitch

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Abercrombie Fitch are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Abercrombie Fitch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carters and Abercrombie Fitch

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

The idea behind Carters and Abercrombie Fitch 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.