Correlation Between Designer Brands and JD Sports

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

By analyzing existing cross correlation between Designer Brands and JD Sports Fashion, you can compare the effects of market volatilities on Designer Brands and JD Sports 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 JD Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Designer Brands and JD Sports.

Diversification Opportunities for Designer Brands and JD Sports

0.61

Correlation Coefficient

Designer Brands  JD Sports

Poor diversification

The 3 months correlation between Designer and JDDSF is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Designer Brands i.e., Designer Brands and JD Sports go up and down completely randomly.

Pair Corralation between Designer Brands and JD Sports

Considering the 90-day investment horizon Designer Brands is expected to under-perform the JD Sports. In addition to that, Designer Brands is 1.49 times more volatile than JD Sports Fashion. It trades about -0.13 of its total potential returns per unit of risk. JD Sports Fashion is currently generating about -0.17 per unit of volatility. If you would invest  146.00  in JD Sports Fashion on December 20, 2024 and sell it today you would lose (40.00) from holding JD Sports Fashion or give up 27.4% of portfolio value over 90 days.

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

Designer Brands  vs.  JD Sports Fashion

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 abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

JD Sports Fashion

Risk-Adjusted Performance

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Designer Brands and JD Sports

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

The idea behind Designer Brands and JD Sports Fashion 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.