Correlation Between Sea and Ross Stores
Can any of the company-specific risk be diversified away by investing in both Sea and Ross Stores 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 Sea and Ross Stores into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sea Limited and Ross Stores, you can compare the effects of market volatilities on Sea and Ross Stores 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 Sea with a short position of Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sea and Ross Stores.
Diversification Opportunities for Sea and Ross Stores
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Sea and Ross is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Sea Limited and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores and Sea 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 Sea Limited are associated (or correlated) with Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Sea i.e., Sea and Ross Stores go up and down completely randomly.
Pair Corralation between Sea and Ross Stores
Assuming the 90 days horizon Sea Limited is expected to generate 1.21 times more return on investment than Ross Stores. However, Sea is 1.21 times more volatile than Ross Stores. It trades about 0.31 of its potential returns per unit of risk. Ross Stores is currently generating about 0.24 per unit of risk. If you would invest 8,830 in Sea Limited on August 30, 2024 and sell it today you would earn a total of 1,970 from holding Sea Limited or generate 22.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Sea Limited vs. Ross Stores
Performance |
| Timeline |
| Sea Limited |
| Ross Stores |
Sea and Ross Stores Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sea and Ross Stores
The main advantage of trading using opposite Sea and Ross Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea position performs unexpectedly, Ross Stores 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 Ross Stores will offset losses from the drop in Ross Stores' long position.The idea behind Sea Limited and Ross Stores 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.| Ross Stores vs. Consolidated Communications Holdings | Ross Stores vs. COLUMBIA SPORTSWEAR | Ross Stores vs. Internet Thailand PCL | Ross Stores vs. DICKS Sporting Goods |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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