Correlation Between Designer Brands and Abercrombie Fitch

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

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

Diversification Opportunities for Designer Brands and Abercrombie Fitch

0.0
  Correlation Coefficient
Designer Brands
Abercrombie Fitch

Pay attention - limited upside

The 3 months correlation between Designer and Abercrombie is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Abercrombie Fitch in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Abercrombie Fitch and Designer Brands 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 Designer Brands 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 Designer Brands i.e., Designer Brands and Abercrombie Fitch go up and down completely randomly.

Pair Corralation between Designer Brands and Abercrombie Fitch

If you would invest (100.00)  in Designer Brands on May 1, 2021 and sell it today you would earn a total of  100.00  from holding Designer Brands or generate -100.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

Designer Brands  vs.  Abercrombie Fitch

 Performance (%) 
      Timeline 
Designer Brands 
 Designer Performance
0 of 100
Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Designer Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Abercrombie Fitch 
 Abercrombie Performance
0 of 100
Over the last 90 days Abercrombie Fitch has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Abercrombie Fitch is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Abercrombie Price Channel

Designer Brands and Abercrombie Fitch Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Designer Brands and Abercrombie Fitch

The main advantage of trading using opposite Designer Brands and Abercrombie Fitch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands 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.

Designer Brands

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Designer Brands as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Designer Brands' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Designer Brands' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Designer Brands.
The idea behind Designer Brands 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.
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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