Correlation Between Designer Brands and Amazon

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

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

Diversification Opportunities for Designer Brands and Amazon

0.29

Correlation Coefficient

Designer Brands  Amazon

Modest diversification

The 3 months correlation between Designer and Amazon is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Designer Brands 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 Designer Brands are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Designer Brands i.e., Designer Brands and Amazon go up and down completely randomly.

Pair Corralation between Designer Brands and Amazon

Considering the 90-day investment horizon Designer Brands is expected to under-perform the Amazon. In addition to that, Designer Brands is 2.23 times more volatile than Amazon Inc. It trades about -0.24 of its total potential returns per unit of risk. Amazon Inc is currently generating about -0.3 per unit of volatility. If you would invest  23,542  in Amazon Inc on November 28, 2024 and sell it today you would lose (2,271) from holding Amazon Inc or give up 9.65% of portfolio value over 90 days.

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

Designer Brands  vs.  Amazon Inc

Designer Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Designer Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Designer Brands is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Amazon Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amazon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Designer Brands and Amazon

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

The idea behind Designer Brands and Amazon Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.