Correlation Between Skechers USA and Kontoor Brands

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

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

Diversification Opportunities for Skechers USA and Kontoor Brands

-0.56

Correlation Coefficient

Skechers USA  Kontoor Brands

Excellent diversification

The 3 months correlation between Skechers and Kontoor is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Skechers USA and Kontoor Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kontoor Brands and Skechers USA 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 Skechers USA are associated (or correlated) with Kontoor Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kontoor Brands has no effect on the direction of Skechers USA i.e., Skechers USA and Kontoor Brands go up and down completely randomly.

Pair Corralation between Skechers USA and Kontoor Brands

Considering the 90-day investment horizon Skechers USA is expected to under-perform the Kontoor Brands. In addition to that, Skechers USA is 1.01 times more volatile than Kontoor Brands. It trades about 0.0 of its total potential returns per unit of risk. Kontoor Brands is currently generating about 0.19 per unit of volatility. If you would invest  7,287  in Kontoor Brands on September 3, 2024 and sell it today you would earn a total of  2,132  from holding Kontoor Brands or generate 29.26% return on investment over 90 days.

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

Skechers USA  vs.  Kontoor Brands

Skechers USA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Skechers USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Skechers USA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Kontoor Brands

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kontoor Brands are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Kontoor Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Skechers USA and Kontoor Brands

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

The idea behind Skechers USA and Kontoor Brands 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.