Correlation Between Adidas AG and Steven Madden

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

Diversification Opportunities for Adidas AG and Steven Madden

0.7

Correlation Coefficient

Adidas AG  Steven Madden

Poor diversification

The 3 months correlation between Adidas and Steven is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Adidas AG ADR and Steven Madden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steven Madden 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 Steven Madden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steven Madden has no effect on the direction of Adidas AG i.e., Adidas AG and Steven Madden go up and down completely randomly.

Pair Corralation between Adidas AG and Steven Madden

Assuming the 90 days horizon Adidas AG ADR is expected to under-perform the Steven Madden. In addition to that, Adidas AG is 1.14 times more volatile than Steven Madden. It trades about -0.05 of its total potential returns per unit of risk. Steven Madden is currently generating about 0.03 per unit of volatility. If you would invest  4,431  in Steven Madden on August 31, 2024 and sell it today you would earn a total of  127.00  from holding Steven Madden or generate 2.87% return on investment over 90 days.

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

Adidas AG ADR  vs.  Steven Madden

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.

Steven Madden

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Steven Madden are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Steven Madden is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Adidas AG and Steven Madden

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

The idea behind Adidas AG ADR and Steven Madden 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.