Correlation Between Dorman Products and Shoe Carnival
Can any of the company-specific risk be diversified away by investing in both Dorman Products and Shoe Carnival 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 Dorman Products and Shoe Carnival into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dorman Products and Shoe Carnival, you can compare the effects of market volatilities on Dorman Products and Shoe Carnival 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 Dorman Products with a short position of Shoe Carnival. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dorman Products and Shoe Carnival.
Diversification Opportunities for Dorman Products and Shoe Carnival
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dorman and Shoe is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and Shoe Carnival in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoe Carnival and Dorman Products 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 Dorman Products are associated (or correlated) with Shoe Carnival. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoe Carnival has no effect on the direction of Dorman Products i.e., Dorman Products and Shoe Carnival go up and down completely randomly.
Pair Corralation between Dorman Products and Shoe Carnival
Given the investment horizon of 90 days Dorman Products is expected to generate 1.11 times less return on investment than Shoe Carnival. But when comparing it to its historical volatility, Dorman Products is 1.19 times less risky than Shoe Carnival. It trades about 0.08 of its potential returns per unit of risk. Shoe Carnival is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,916 in Shoe Carnival on August 27, 2024 and sell it today you would earn a total of 1,474 from holding Shoe Carnival or generate 76.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dorman Products vs. Shoe Carnival
Performance |
| Timeline |
| Dorman Products |
| Shoe Carnival |
Dorman Products and Shoe Carnival Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dorman Products and Shoe Carnival
The main advantage of trading using opposite Dorman Products and Shoe Carnival positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dorman Products position performs unexpectedly, Shoe Carnival 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 Shoe Carnival will offset losses from the drop in Shoe Carnival's long position.The idea behind Dorman Products and Shoe Carnival 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.| Shoe Carnival vs. Citi Trends | Shoe Carnival vs. Zumiez Inc | Shoe Carnival vs. Buckle Inc | Shoe Carnival vs. Cato Corporation |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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