Correlation Between Stepstone and Carters

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

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

Diversification Opportunities for Stepstone and Carters

-0.7

Correlation Coefficient

Stepstone  Carters

Excellent diversification

The 3 months correlation between Stepstone and Carters is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Carters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carters and Stepstone 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 Stepstone Group are associated (or correlated) with Carters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carters has no effect on the direction of Stepstone i.e., Stepstone and Carters go up and down completely randomly.

Pair Corralation between Stepstone and Carters

Given the investment horizon of 90 days Stepstone Group is expected to under-perform the Carters. In addition to that, Stepstone is 1.47 times more volatile than Carters. It trades about -0.18 of its total potential returns per unit of risk. Carters is currently generating about -0.02 per unit of volatility. If you would invest  5,528  in Carters on September 25, 2024 and sell it today you would lose (46.00) from holding Carters or give up 0.83% of portfolio value over 90 days.

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

Stepstone Group  vs.  Carters

Stepstone Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, Stepstone may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Carters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carters has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Stepstone and Carters

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

The idea behind Stepstone Group and Carters 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.