Correlation Between Designer Brands and Carters

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

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

Diversification Opportunities for Designer Brands and Carters

0.87

Correlation Coefficient

Designer Brands  Carters

Very poor diversification

The 3 months correlation between Designer and Carters is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Carters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carters 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 Carters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carters has no effect on the direction of Designer Brands i.e., Designer Brands and Carters go up and down completely randomly.

Pair Corralation between Designer Brands and Carters

Considering the 90-day investment horizon Designer Brands is expected to under-perform the Carters. In addition to that, Designer Brands is 1.93 times more volatile than Carters. It trades about -0.41 of its total potential returns per unit of risk. Carters is currently generating about -0.45 per unit of volatility. If you would invest  8,454  in Carters on January 20, 2024 and sell it today you would lose (1,313) from holding Carters or give up 15.53% of portfolio value over 90 days.

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

Designer Brands  vs.  Carters

Designer Brands

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Designer Brands are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Designer Brands is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

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 latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Designer Brands and Carters

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

The idea behind Designer Brands and Carters 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.