Correlation Between Dixons Carphone and Childrens Place

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

By analyzing existing cross correlation between Dixons Carphone plc and Childrens Place, you can compare the effects of market volatilities on Dixons Carphone and Childrens Place 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 Dixons Carphone with a short position of Childrens Place. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dixons Carphone and Childrens Place.

Diversification Opportunities for Dixons Carphone and Childrens Place

-0.83

Correlation Coefficient

Dixons Carphone  Childrens Place

Pay attention - limited upside

The 3 months correlation between Dixons and Childrens is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dixons Carphone plc and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place and Dixons Carphone 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 Dixons Carphone plc are associated (or correlated) with Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of Dixons Carphone i.e., Dixons Carphone and Childrens Place go up and down completely randomly.

Pair Corralation between Dixons Carphone and Childrens Place

Assuming the 90 days horizon Dixons Carphone is expected to generate 1.92 times less return on investment than Childrens Place. But when comparing it to its historical volatility, Dixons Carphone plc is 2.8 times less risky than Childrens Place. It trades about 0.02 of its potential returns per unit of risk. Childrens Place is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,110  in Childrens Place on October 22, 2024 and sell it today you would lose (75.00) from holding Childrens Place or give up 6.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Dixons Carphone plc  vs.  Childrens Place

Dixons Carphone plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dixons Carphone plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Dixons Carphone is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Childrens Place

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Childrens Place has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Childrens Place is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dixons Carphone and Childrens Place

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

The idea behind Dixons Carphone plc and Childrens Place 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.