Correlation Between Adidas AG and Crocs
Can any of the company-specific risk be diversified away by investing in both Adidas AG and Crocs 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 Adidas AG and Crocs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adidas AG ADR and Crocs Inc, you can compare the effects of market volatilities on Adidas AG and Crocs 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 Adidas AG with a short position of Crocs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adidas AG and Crocs.
Diversification Opportunities for Adidas AG and Crocs
Poor diversification
The 3 months correlation between Adidas and Crocs is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Adidas AG ADR and Crocs Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crocs Inc and Adidas AG 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 Adidas AG ADR are associated (or correlated) with Crocs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crocs Inc has no effect on the direction of Adidas AG i.e., Adidas AG and Crocs go up and down completely randomly.
Pair Corralation between Adidas AG and Crocs
Assuming the 90 days horizon Adidas AG ADR is expected to generate 0.45 times more return on investment than Crocs. However, Adidas AG ADR is 2.2 times less risky than Crocs. It trades about -0.06 of its potential returns per unit of risk. Crocs Inc is currently generating about -0.23 per unit of risk. If you would invest 11,532 in Adidas AG ADR on August 28, 2024 and sell it today you would lose (361.00) from holding Adidas AG ADR or give up 3.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Adidas AG ADR vs. Crocs Inc
Performance |
| Timeline |
| Adidas AG ADR |
| Crocs Inc |
Adidas AG and Crocs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Adidas AG and Crocs
The main advantage of trading using opposite Adidas AG and Crocs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adidas AG position performs unexpectedly, Crocs 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 Crocs will offset losses from the drop in Crocs' long position.| Adidas AG vs. ASICS | Adidas AG vs. Asics Corp ADR | Adidas AG vs. American Rebel Holdings | Adidas AG vs. American Rebel Holdings |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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