Correlation Between Adidas AG and Designer Brands

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

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

Diversification Opportunities for Adidas AG and Designer Brands

0.79

Correlation Coefficient

Adidas AG  Designer Brands

Poor diversification

The 3 months correlation between Adidas and Designer is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Adidas AG ADR and Designer Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Designer Brands and Adidas AG 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 Adidas AG ADR are associated (or correlated) with Designer Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Designer Brands has no effect on the direction of Adidas AG i.e., Adidas AG and Designer Brands go up and down completely randomly.

Pair Corralation between Adidas AG and Designer Brands

Assuming the 90 days horizon Adidas AG ADR is expected to under-perform the Designer Brands. But the otc stock apears to be less risky and, when comparing its historical volatility, Adidas AG ADR is 2.17 times less risky than Designer Brands. The otc stock trades about -0.03 of its potential returns per unit of risk. The Designer Brands is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  512.00  in Designer Brands on September 3, 2024 and sell it today you would lose (16.00) from holding Designer Brands or give up 3.12% of portfolio value over 90 days.

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

Adidas AG ADR  vs.  Designer Brands

Adidas AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adidas AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Designer Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Adidas AG and Designer Brands

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

The idea behind Adidas AG ADR and Designer Brands 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.