Correlation Between Carters and Tandy Leather

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

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

Diversification Opportunities for Carters and Tandy Leather

-0.09

Correlation Coefficient

Carters  Tandy Leather

Good diversification

The 3 months correlation between Carters and Tandy is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Carters and Tandy Leather Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandy Leather Factory and Carters 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 Carters are associated (or correlated) with Tandy Leather. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandy Leather Factory has no effect on the direction of Carters i.e., Carters and Tandy Leather go up and down completely randomly.

Pair Corralation between Carters and Tandy Leather

Considering the 90-day investment horizon Carters is expected to under-perform the Tandy Leather. But the stock apears to be less risky and, when comparing its historical volatility, Carters is 1.16 times less risky than Tandy Leather. The stock trades about -0.03 of its potential returns per unit of risk. The Tandy Leather Factory is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  438.00  in Tandy Leather Factory on September 30, 2024 and sell it today you would earn a total of  46.00  from holding Tandy Leather Factory or generate 10.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Carters  vs.  Tandy Leather Factory

Carters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carters has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Tandy Leather Factory

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Tandy Leather reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carters and Tandy Leather

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

The idea behind Carters and Tandy Leather Factory 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.