Correlation Between Retailors and Direct Capital

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

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

Diversification Opportunities for Retailors and Direct Capital

-0.24

Correlation Coefficient

Retailors  Direct Capital

Very good diversification

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

Pair Corralation between Retailors and Direct Capital

Assuming the 90 days trading horizon Retailors is expected to generate 0.59 times more return on investment than Direct Capital. However, Retailors is 1.69 times less risky than Direct Capital. It trades about 0.21 of its potential returns per unit of risk. Direct Capital Investments is currently generating about -0.06 per unit of risk. If you would invest  739,500  in Retailors on December 2, 2024 and sell it today you would earn a total of  149,500  from holding Retailors or generate 20.22% return on investment over 90 days.

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

Retailors  vs.  Direct Capital Investments

Retailors

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retailors are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Retailors sustained solid returns over the last few months and may actually be approaching a breakup point.

Direct Capital Inves

Risk-Adjusted Performance

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Retailors and Direct Capital

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

The idea behind Retailors and Direct Capital Investments 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.