Correlation Between Gap and Urban Outfitters

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

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

Diversification Opportunities for Gap and Urban Outfitters

0.3

Correlation Coefficient

Gap  Urban Outfitters

Weak diversification

The 3 months correlation between Gap and Urban is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding The Gap and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of Gap i.e., Gap and Urban Outfitters go up and down completely randomly.

Pair Corralation between Gap and Urban Outfitters

Assuming the 90 days horizon The Gap is expected to under-perform the Urban Outfitters. In addition to that, Gap is 1.04 times more volatile than Urban Outfitters. It trades about -0.08 of its total potential returns per unit of risk. Urban Outfitters is currently generating about -0.05 per unit of volatility. If you would invest  5,100  in Urban Outfitters on December 20, 2024 and sell it today you would lose (620.00) from holding Urban Outfitters or give up 12.16% of portfolio value over 90 days.

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

The Gap  vs.  Urban Outfitters

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 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.

Urban Outfitters

Risk-Adjusted Performance

Very Weak

Over the last 90 days Urban Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Gap and Urban Outfitters

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

The idea behind The Gap and Urban Outfitters 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.