Correlation Between Adidas AG and Good Vibrations

Can any of the company-specific risk be diversified away by investing in both Adidas AG and Good Vibrations 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 Good Vibrations 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 Good Vibrations Shoes, you can compare the effects of market volatilities on Adidas AG and Good Vibrations 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 Good Vibrations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adidas AG and Good Vibrations.

Diversification Opportunities for Adidas AG and Good Vibrations

0.46

Correlation Coefficient

Adidas AG  Good Vibrations

Very weak diversification

The 3 months correlation between Adidas and Good is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Adidas AG ADR and Good Vibrations Shoes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Good Vibrations Shoes 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 Good Vibrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Good Vibrations Shoes has no effect on the direction of Adidas AG i.e., Adidas AG and Good Vibrations go up and down completely randomly.

Pair Corralation between Adidas AG and Good Vibrations

Assuming the 90 days horizon Adidas AG ADR is expected to under-perform the Good Vibrations. But the otc stock apears to be less risky and, when comparing its historical volatility, Adidas AG ADR is 5.58 times less risky than Good Vibrations. The otc stock trades about -0.01 of its potential returns per unit of risk. The Good Vibrations Shoes is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.35  in Good Vibrations Shoes on December 28, 2024 and sell it today you would lose (0.02) from holding Good Vibrations Shoes or give up 5.71% of portfolio value over 90 days.

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

Adidas AG ADR  vs.  Good Vibrations Shoes

Adidas AG ADR

Risk-Adjusted Performance

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.

Good Vibrations Shoes

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Good Vibrations Shoes are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Good Vibrations demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adidas AG and Good Vibrations

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

The idea behind Adidas AG ADR and Good Vibrations Shoes 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.