Correlation Between Gap and Buckle
Can any of the company-specific risk be diversified away by investing in both Gap and Buckle 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 Gap and Buckle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gap Inc and Buckle Inc, you can compare the effects of market volatilities on Gap and Buckle 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 Gap with a short position of Buckle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap and Buckle.
Diversification Opportunities for Gap and Buckle
Good diversification
The 3 months correlation between Gap and Buckle is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc and Buckle Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Buckle Inc and Gap 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 Gap Inc are associated (or correlated) with Buckle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Buckle Inc has no effect on the direction of Gap i.e., Gap and Buckle go up and down completely randomly.
Pair Corralation between Gap and Buckle
Considering the 90-day investment horizon Gap Inc is expected to under-perform the Buckle. In addition to that, Gap is 1.5 times more volatile than Buckle Inc. It trades about -0.1 of its total potential returns per unit of risk. Buckle Inc is currently generating about 0.13 per unit of volatility. If you would invest 3,789 in Buckle Inc on August 30, 2024 and sell it today you would earn a total of 1,335 from holding Buckle Inc or generate 35.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 48.41% |
| Values | Daily Returns |
Gap Inc vs. Buckle Inc
Performance |
| Timeline |
| Gap Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Buckle Inc |
Gap and Buckle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gap and Buckle
The main advantage of trading using opposite Gap and Buckle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gap position performs unexpectedly, Buckle 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 Buckle will offset losses from the drop in Buckle's long position.The idea behind Gap Inc and Buckle Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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