Correlation Between Computer Direct and Retailors

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

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

Diversification Opportunities for Computer Direct and Retailors

0.7

Correlation Coefficient

Computer Direct  Retailors

Poor diversification

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

Pair Corralation between Computer Direct and Retailors

Assuming the 90 days trading horizon Computer Direct is expected to generate 2.05 times less return on investment than Retailors. But when comparing it to its historical volatility, Computer Direct is 1.2 times less risky than Retailors. It trades about 0.09 of its potential returns per unit of risk. Retailors is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  750,000  in Retailors on December 1, 2024 and sell it today you would earn a total of  139,000  from holding Retailors or generate 18.53% return on investment over 90 days.

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

Computer Direct  vs.  Retailors

Computer Direct

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Direct are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Computer Direct may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Retailors

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retailors are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Retailors sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Computer Direct and Retailors

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

The idea behind Computer Direct and Retailors 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.