Correlation Between ABC MartInc and Urban Outfitters

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

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

Diversification Opportunities for ABC MartInc and Urban Outfitters

0.0

Correlation Coefficient

ABC MartInc  Urban Outfitters

Pay attention - limited upside

The 3 months correlation between ABC and Urban is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding ABC MartInc and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters and ABC MartInc 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 ABC MartInc 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 ABC MartInc i.e., ABC MartInc and Urban Outfitters go up and down completely randomly.

Pair Corralation between ABC MartInc and Urban Outfitters

Assuming the 90 days horizon ABC MartInc is expected to generate 2.67 times more return on investment than Urban Outfitters. However, ABC MartInc is 2.67 times more volatile than Urban Outfitters. It trades about 0.58 of its potential returns per unit of risk. Urban Outfitters is currently generating about 0.07 per unit of risk. If you would invest  5,300  in ABC MartInc on September 25, 2024 and sell it today you would earn a total of  643.00  from holding ABC MartInc or generate 12.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.6%
Values	Daily Returns

ABC MartInc  vs.  Urban Outfitters

ABC MartInc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABC MartInc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ABC MartInc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Urban Outfitters

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Urban Outfitters are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Urban Outfitters displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC MartInc and Urban Outfitters

The main advantage of trading using opposite ABC MartInc and Urban Outfitters positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC MartInc 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 ABC MartInc 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.