Correlation Between Broadwind and Urban Outfitters

Can any of the company-specific risk be diversified away by investing in both Broadwind and Urban Outfitters 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 Broadwind and Urban Outfitters into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Broadwind and Urban Outfitters, you can compare the effects of market volatilities on Broadwind and Urban Outfitters 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 Broadwind with a short position of Urban Outfitters. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broadwind and Urban Outfitters.

Diversification Opportunities for Broadwind and Urban Outfitters

0.56

Correlation Coefficient

Broadwind  Urban Outfitters

Very weak diversification

The 3 months correlation between Broadwind and Urban is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Broadwind and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters and Broadwind 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 Broadwind are associated (or correlated) with Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of Broadwind i.e., Broadwind and Urban Outfitters go up and down completely randomly.

Pair Corralation between Broadwind and Urban Outfitters

Assuming the 90 days trading horizon Broadwind is expected to under-perform the Urban Outfitters. In addition to that, Broadwind is 1.09 times more volatile than Urban Outfitters. It trades about -0.1 of its total potential returns per unit of risk. Urban Outfitters is currently generating about -0.07 per unit of volatility. If you would invest  5,300  in Urban Outfitters on December 22, 2024 and sell it today you would lose (820.00) from holding Urban Outfitters or give up 15.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Broadwind  vs.  Urban Outfitters

Broadwind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Broadwind has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Urban Outfitters

Risk-Adjusted Performance

Very Weak

Over the last 90 days Urban Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Broadwind and Urban Outfitters

The main advantage of trading using opposite Broadwind and Urban Outfitters positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadwind position performs unexpectedly, Urban Outfitters 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 Urban Outfitters will offset losses from the drop in Urban Outfitters' long position.

The idea behind Broadwind and Urban Outfitters 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.