Correlation Between Designer Brands and L Brands

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

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

Diversification Opportunities for Designer Brands and L Brands

-0.64
  Correlation Coefficient
Designer Brands
L Brands

Excellent diversification

The 3 months correlation between Designer and L Brands is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and L Brands in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on L Brands 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 L Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L Brands has no effect on the direction of Designer Brands i.e., Designer Brands and L Brands go up and down completely randomly.

Pair Corralation between Designer Brands and L Brands

Considering the 90-day investment horizon Designer Brands is expected to under-perform the L Brands. In addition to that, Designer Brands is 1.48 times more volatile than L Brands. It trades about -0.09 of its total potential returns per unit of risk. L Brands is currently generating about 0.12 per unit of volatility. If you would invest  6,763  in L Brands on May 1, 2021 and sell it today you would earn a total of  1,244  from holding L Brands or generate 18.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Designer Brands  vs.  L Brands

 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 weak performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in August 2021. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Designer Price Channel

L Brands 
 L Brands Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in L Brands are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, L Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

L Brands Price Channel

Designer Brands and L Brands Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Designer Brands and L Brands

The main advantage of trading using opposite Designer Brands and L Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands position performs unexpectedly, L 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 L Brands will offset losses from the drop in L Brands' long position.
The idea behind Designer Brands and L 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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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