Correlation Between RH and Five Below
Can any of the company-specific risk be diversified away by investing in both RH and Five Below 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 RH and Five Below into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RH and Five Below, you can compare the effects of market volatilities on RH and Five Below 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 RH with a short position of Five Below. Check out your portfolio center. Please also check ongoing floating volatility patterns of RH and Five Below.
Diversification Opportunities for RH and Five Below
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between RH and Five is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding RH and Five Below in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Below and RH 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 RH are associated (or correlated) with Five Below. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Below has no effect on the direction of RH i.e., RH and Five Below go up and down completely randomly.
Pair Corralation between RH and Five Below
Allowing for the 90-day total investment horizon RH is expected to generate 0.92 times more return on investment than Five Below. However, RH is 1.09 times less risky than Five Below. It trades about 0.11 of its potential returns per unit of risk. Five Below is currently generating about 0.04 per unit of risk. If you would invest 33,442 in RH on November 1, 2024 and sell it today you would earn a total of 8,759 from holding RH or generate 26.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RH vs. Five Below
Performance |
| Timeline |
| RH |
| Five Below |
RH and Five Below Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RH and Five Below
The main advantage of trading using opposite RH and Five Below positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RH position performs unexpectedly, Five Below 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 Five Below will offset losses from the drop in Five Below's long position.The idea behind RH and Five Below 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.| Five Below vs. OReilly Automotive | Five Below vs. AutoZone | Five Below vs. Genuine Parts Co | Five Below vs. Williams Sonoma |
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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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