Correlation Between Shoe Carnival and Foot Locker

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

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

Diversification Opportunities for Shoe Carnival and Foot Locker

0.84

Correlation Coefficient

Shoe Carnival  Foot Locker

Very poor diversification

The 3 months correlation between Shoe and Foot is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shoe Carnival and Foot Locker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foot Locker and Shoe Carnival 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 Shoe Carnival are associated (or correlated) with Foot Locker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foot Locker has no effect on the direction of Shoe Carnival i.e., Shoe Carnival and Foot Locker go up and down completely randomly.

Pair Corralation between Shoe Carnival and Foot Locker

Given the investment horizon of 90 days Shoe Carnival is expected to under-perform the Foot Locker. But the stock apears to be less risky and, when comparing its historical volatility, Shoe Carnival is 1.15 times less risky than Foot Locker. The stock trades about -0.4 of its potential returns per unit of risk. The Foot Locker is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  2,013  in Foot Locker on November 28, 2024 and sell it today you would lose (270.00) from holding Foot Locker or give up 13.41% of portfolio value over 90 days.

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

Shoe Carnival  vs.  Foot Locker

Shoe Carnival

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shoe Carnival 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 basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Foot Locker

Risk-Adjusted Performance

Very Weak

Over the last 90 days Foot Locker 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 essential indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Shoe Carnival and Foot Locker

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

The idea behind Shoe Carnival and Foot Locker 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.