Correlation Between Shoe Carnival and Urban Outfitters

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

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

Diversification Opportunities for Shoe Carnival and Urban Outfitters

0.4

Correlation Coefficient

Shoe Carnival  Urban Outfitters

Very weak diversification

The 3 months correlation between Shoe and Urban is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Shoe Carnival and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 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 Shoe Carnival i.e., Shoe Carnival and Urban Outfitters go up and down completely randomly.

Pair Corralation between Shoe Carnival and Urban Outfitters

Given the investment horizon of 90 days Shoe Carnival is expected to under-perform the Urban Outfitters. But the stock apears to be less risky and, when comparing its historical volatility, Shoe Carnival is 1.3 times less risky than Urban Outfitters. The stock trades about -0.3 of its potential returns per unit of risk. The Urban Outfitters is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,518  in Urban Outfitters on December 28, 2024 and sell it today you would lose (336.00) from holding Urban Outfitters or give up 6.09% of portfolio value over 90 days.

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

Shoe Carnival  vs.  Urban Outfitters

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 unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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. In spite of very healthy fundamental drivers, Urban Outfitters is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Shoe Carnival and Urban Outfitters

The main advantage of trading using opposite Shoe Carnival and Urban Outfitters positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shoe Carnival 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 Shoe Carnival 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.