Correlation Between Continental and Dr Martens

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

By analyzing existing cross correlation between Caleres and Dr Martens plc, you can compare the effects of market volatilities on Continental and Dr Martens 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 Dr Martens. Check out your portfolio center. Please also check ongoing floating volatility patterns of Continental and Dr Martens.

Diversification Opportunities for Continental and Dr Martens

0.78

Correlation Coefficient

Continental  Dr Martens

Poor diversification

The 3 months correlation between Continental and DOCMF is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Caleres and Dr Martens plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dr Martens plc 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 Dr Martens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dr Martens plc has no effect on the direction of Continental i.e., Continental and Dr Martens go up and down completely randomly.

Pair Corralation between Continental and Dr Martens

Considering the 90-day investment horizon Caleres is expected to under-perform the Dr Martens. But the stock apears to be less risky and, when comparing its historical volatility, Caleres is 1.06 times less risky than Dr Martens. The stock trades about -0.1 of its potential returns per unit of risk. The Dr Martens plc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Dr Martens plc on September 3, 2024 and sell it today you would lose (5.00) from holding Dr Martens plc or give up 5.43% of portfolio value over 90 days.

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

Caleres  vs.  Dr Martens plc

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 weak 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.

Dr Martens plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Continental and Dr Martens

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

The idea behind Caleres and Dr Martens plc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.