Correlation Between Shoe Carnival and Industria

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

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

Diversification Opportunities for Shoe Carnival and Industria

0.88

Correlation Coefficient

Shoe Carnival  Industria

Very poor diversification

The 3 months correlation between Shoe and Industria is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Shoe Carnival and Industria de Diseno in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industria de Diseno and Shoe Carnival 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 Shoe Carnival are associated (or correlated) with Industria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industria de Diseno has no effect on the direction of Shoe Carnival i.e., Shoe Carnival and Industria go up and down completely randomly.

Pair Corralation between Shoe Carnival and Industria

Given the investment horizon of 90 days Shoe Carnival is expected to generate 2.21 times more return on investment than Industria. However, Shoe Carnival is 2.21 times more volatile than Industria de Diseno. It trades about 0.05 of its potential returns per unit of risk. Industria de Diseno is currently generating about -0.28 per unit of risk. If you would invest  3,180  in Shoe Carnival on January 19, 2024 and sell it today you would earn a total of  66.00  from holding Shoe Carnival or generate 2.08% return on investment over 90 days.

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

Shoe Carnival  vs.  Industria de Diseno

Shoe Carnival

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shoe Carnival are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shoe Carnival disclosed solid returns over the last few months and may actually be approaching a breakup point.

Industria de Diseno

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industria de Diseno are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Industria may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Shoe Carnival and Industria

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

The idea behind Shoe Carnival and Industria de Diseno 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 the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.