Correlation Between BRP and Signet Jewelers

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

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

Diversification Opportunities for BRP and Signet Jewelers

0.68

Correlation Coefficient

BRP  Signet Jewelers

Poor diversification

The 3 months correlation between BRP and Signet is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Signet Jewelers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signet Jewelers and BRP 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 BRP Inc are associated (or correlated) with Signet Jewelers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signet Jewelers has no effect on the direction of BRP i.e., BRP and Signet Jewelers go up and down completely randomly.

Pair Corralation between BRP and Signet Jewelers

Given the investment horizon of 90 days BRP Inc is expected to under-perform the Signet Jewelers. But the stock apears to be less risky and, when comparing its historical volatility, BRP Inc is 1.57 times less risky than Signet Jewelers. The stock trades about -0.14 of its potential returns per unit of risk. The Signet Jewelers is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  8,158  in Signet Jewelers on December 27, 2024 and sell it today you would lose (2,105) from holding Signet Jewelers or give up 25.8% of portfolio value over 90 days.

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

BRP Inc  vs.  Signet Jewelers

BRP Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Signet Jewelers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Signet Jewelers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward 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 BRP and Signet Jewelers

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

The idea behind BRP Inc and Signet Jewelers 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.