Correlation Between Ralph Lauren and Johnson Outdoors

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

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

Diversification Opportunities for Ralph Lauren and Johnson Outdoors

-0.51

Correlation Coefficient

Ralph Lauren  Johnson Outdoors

Excellent diversification

The 3 months correlation between Ralph and Johnson is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ralph Lauren Corp and Johnson Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Outdoors and Ralph Lauren 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 Ralph Lauren Corp are associated (or correlated) with Johnson Outdoors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Outdoors has no effect on the direction of Ralph Lauren i.e., Ralph Lauren and Johnson Outdoors go up and down completely randomly.

Pair Corralation between Ralph Lauren and Johnson Outdoors

Allowing for the 90-day total investment horizon Ralph Lauren Corp is expected to generate 0.78 times more return on investment than Johnson Outdoors. However, Ralph Lauren Corp is 1.28 times less risky than Johnson Outdoors. It trades about 0.27 of its potential returns per unit of risk. Johnson Outdoors is currently generating about -0.02 per unit of risk. If you would invest  20,480  in Ralph Lauren Corp on November 19, 2024 and sell it today you would earn a total of  7,783  from holding Ralph Lauren Corp or generate 38.0% return on investment over 90 days.

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

Ralph Lauren Corp  vs.  Johnson Outdoors

Ralph Lauren Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ralph Lauren Corp are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Ralph Lauren disclosed solid returns over the last few months and may actually be approaching a breakup point.

Johnson Outdoors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Johnson Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Johnson Outdoors is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Ralph Lauren and Johnson Outdoors

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

The idea behind Ralph Lauren Corp and Johnson Outdoors 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.