Correlation Between Designer Brands and Toro

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

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

Diversification Opportunities for Designer Brands and Toro

-0.12

Correlation Coefficient

Designer Brands  Toro

Good diversification

The 3 months correlation between Designer and Toro is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro 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 Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of Designer Brands i.e., Designer Brands and Toro go up and down completely randomly.

Pair Corralation between Designer Brands and Toro

Considering the 90-day investment horizon Designer Brands is expected to generate 2.8 times more return on investment than Toro. However, Designer Brands is 2.8 times more volatile than Toro Co. It trades about -0.08 of its potential returns per unit of risk. Toro Co is currently generating about -0.32 per unit of risk. If you would invest  579.00  in Designer Brands on October 8, 2024 and sell it today you would lose (39.00) from holding Designer Brands or give up 6.74% of portfolio value over 90 days.

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

Designer Brands  vs.  Toro Co

Designer Brands

Risk-Adjusted Performance

0 of 100

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.

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Toro 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 Toro

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

The idea behind Designer Brands and Toro Co 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.