Correlation Between Designer Brands and Nike

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

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

Diversification Opportunities for Designer Brands and Nike

-0.02

Correlation Coefficient

Designer Brands  Nike

Good diversification

The 3 months correlation between Designer and Nike is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Designer Brands i.e., Designer Brands and Nike go up and down completely randomly.

Pair Corralation between Designer Brands and Nike

Considering the 90-day investment horizon Designer Brands is expected to under-perform the Nike. In addition to that, Designer Brands is 2.25 times more volatile than Nike Inc. It trades about 0.0 of its total potential returns per unit of risk. Nike Inc is currently generating about 0.05 per unit of volatility. If you would invest  7,837  in Nike Inc on November 28, 2024 and sell it today you would earn a total of  335.00  from holding Nike Inc or generate 4.27% return on investment over 90 days.

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

Designer Brands  vs.  Nike 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.

Nike Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Designer Brands and Nike

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

The idea behind Designer Brands and Nike 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.