Correlation Between Gap and Synchrony Financial

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

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

Diversification Opportunities for Gap and Synchrony Financial

0.55

Correlation Coefficient

Gap  Synchrony Financial

Very weak diversification

The 3 months correlation between Gap and Synchrony is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Gap and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial and Gap 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 The Gap are associated (or correlated) with Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of Gap i.e., Gap and Synchrony Financial go up and down completely randomly.

Pair Corralation between Gap and Synchrony Financial

Assuming the 90 days horizon The Gap is expected to generate 1.63 times more return on investment than Synchrony Financial. However, Gap is 1.63 times more volatile than Synchrony Financial. It trades about -0.08 of its potential returns per unit of risk. Synchrony Financial is currently generating about -0.19 per unit of risk. If you would invest  2,232  in The Gap on December 20, 2024 and sell it today you would lose (410.00) from holding The Gap or give up 18.37% of portfolio value over 90 days.

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

The Gap  vs.  Synchrony Financial

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. Despite uncertain performance in the last few months, the Stock's basic 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.

Synchrony Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synchrony Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic 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 Gap and Synchrony Financial

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

The idea behind The Gap and Synchrony Financial 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.