Correlation Between Designer Brands and Adidas AG
Can any of the company-specific risk be diversified away by investing in both Designer Brands and Adidas AG 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 Adidas AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Designer Brands and Adidas AG ADR, you can compare the effects of market volatilities on Designer Brands and Adidas AG 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 Adidas AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Designer Brands and Adidas AG.
Diversification Opportunities for Designer Brands and Adidas AG
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Designer and Adidas is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Adidas AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adidas AG ADR 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 Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adidas AG ADR has no effect on the direction of Designer Brands i.e., Designer Brands and Adidas AG go up and down completely randomly.
Pair Corralation between Designer Brands and Adidas AG
Considering the 90-day investment horizon Designer Brands is expected to under-perform the Adidas AG. In addition to that, Designer Brands is 2.19 times more volatile than Adidas AG ADR. It trades about -0.03 of its total potential returns per unit of risk. Adidas AG ADR is currently generating about -0.06 per unit of volatility. If you would invest 12,005 in Adidas AG ADR on August 31, 2024 and sell it today you would lose (383.00) from holding Adidas AG ADR or give up 3.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Designer Brands vs. Adidas AG ADR
Performance |
| Timeline |
| Designer Brands |
| Adidas AG ADR |
Designer Brands and Adidas AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Designer Brands and Adidas AG
The main advantage of trading using opposite Designer Brands and Adidas AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands position performs unexpectedly, Adidas AG 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 Adidas AG will offset losses from the drop in Adidas AG's long position.| Designer Brands vs. Wolverine World Wide | Designer Brands vs. Weyco Group | Designer Brands vs. Steven Madden | Designer Brands vs. Rocky Brands |
| 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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