Correlation Between Continental and Torrid Holdings

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

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

Diversification Opportunities for Continental and Torrid Holdings

-0.63

Correlation Coefficient

Continental  Torrid Holdings

Excellent diversification

The 3 months correlation between Continental and Torrid is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Caleres and Torrid Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Torrid Holdings and Continental 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 Caleres are associated (or correlated) with Torrid Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Torrid Holdings has no effect on the direction of Continental i.e., Continental and Torrid Holdings go up and down completely randomly.

Pair Corralation between Continental and Torrid Holdings

Considering the 90-day investment horizon Caleres is expected to under-perform the Torrid Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Caleres is 1.58 times less risky than Torrid Holdings. The stock trades about -0.13 of its potential returns per unit of risk. The Torrid Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  393.00  in Torrid Holdings on September 29, 2024 and sell it today you would earn a total of  135.00  from holding Torrid Holdings or generate 34.35% return on investment over 90 days.

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

Caleres  vs.  Torrid Holdings

Continental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caleres has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Torrid Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Torrid Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Torrid Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Continental and Torrid Holdings

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

The idea behind Caleres and Torrid Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .