Correlation Between Zumiez and Gap
Can any of the company-specific risk be diversified away by investing in both Zumiez and Gap 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 Zumiez and Gap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zumiez Inc and Gap Inc, you can compare the effects of market volatilities on Zumiez and Gap 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 Zumiez with a short position of Gap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zumiez and Gap.
Diversification Opportunities for Zumiez and Gap
Modest diversification
The 3 months correlation between Zumiez and Gap is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Zumiez Inc and Gap Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap Inc and Zumiez 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 Zumiez Inc are associated (or correlated) with Gap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap Inc has no effect on the direction of Zumiez i.e., Zumiez and Gap go up and down completely randomly.
Pair Corralation between Zumiez and Gap
Given the investment horizon of 90 days Zumiez is expected to generate 3.94 times less return on investment than Gap. But when comparing it to its historical volatility, Zumiez Inc is 1.19 times less risky than Gap. It trades about 0.02 of its potential returns per unit of risk. Gap Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,348 in Gap Inc on August 27, 2024 and sell it today you would earn a total of 980.00 from holding Gap Inc or generate 72.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 87.5% |
| Values | Daily Returns |
Zumiez Inc vs. Gap Inc
Performance |
| Timeline |
| Zumiez Inc |
| Gap Inc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Zumiez and Gap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zumiez and Gap
The main advantage of trading using opposite Zumiez and Gap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zumiez position performs unexpectedly, Gap 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 Gap will offset losses from the drop in Gap's long position.The idea behind Zumiez Inc and Gap 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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