Correlation Between TheRealReal and Tapestry

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

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

Diversification Opportunities for TheRealReal and Tapestry

0.24

Correlation Coefficient

TheRealReal  Tapestry

Modest diversification

The 3 months correlation between TheRealReal and Tapestry is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding TheRealReal and Tapestry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tapestry and TheRealReal 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 TheRealReal are associated (or correlated) with Tapestry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tapestry has no effect on the direction of TheRealReal i.e., TheRealReal and Tapestry go up and down completely randomly.

Pair Corralation between TheRealReal and Tapestry

Given the investment horizon of 90 days TheRealReal is expected to generate 1.18 times less return on investment than Tapestry. In addition to that, TheRealReal is 3.1 times more volatile than Tapestry. It trades about 0.06 of its total potential returns per unit of risk. Tapestry is currently generating about 0.24 per unit of volatility. If you would invest  6,194  in Tapestry on November 28, 2024 and sell it today you would earn a total of  2,245  from holding Tapestry or generate 36.24% return on investment over 90 days.

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

TheRealReal  vs.  Tapestry

TheRealReal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TheRealReal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, TheRealReal disclosed solid returns over the last few months and may actually be approaching a breakup point.

Tapestry

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tapestry are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Tapestry reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TheRealReal and Tapestry

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

The idea behind TheRealReal and Tapestry 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.