Correlation Between Estee Lauder and Gap,

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

By analyzing existing cross correlation between Estee Lauder Companies and The Gap,, you can compare the effects of market volatilities on Estee Lauder and Gap, 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 Estee Lauder with a short position of Gap,. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Gap,.

Diversification Opportunities for Estee Lauder and Gap,

0.69

Correlation Coefficient

Estee Lauder  Gap,

Poor diversification

The 3 months correlation between Estee and Gap, is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and The Gap, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gap, and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with Gap,. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gap, has no effect on the direction of Estee Lauder i.e., Estee Lauder and Gap, go up and down completely randomly.

Pair Corralation between Estee Lauder and Gap,

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Gap,. But the stock apears to be less risky and, when comparing its historical volatility, Estee Lauder Companies is 1.15 times less risky than Gap,. The stock trades about -0.05 of its potential returns per unit of risk. The The Gap, is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,440  in The Gap, on December 26, 2024 and sell it today you would lose (284.00) from holding The Gap, or give up 11.64% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  The Gap,

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Gap,

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Gap, has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Estee Lauder and Gap,

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

The idea behind Estee Lauder Companies and The Gap, 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.