Correlation Between Tapestry and T.J. Maxx

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

By analyzing existing cross correlation between Tapestry and The TJX Companies, you can compare the effects of market volatilities on Tapestry and T.J. Maxx 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 Tapestry with a short position of T.J. Maxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tapestry and T.J. Maxx.

Diversification Opportunities for Tapestry and T.J. Maxx

0.87

Correlation Coefficient

Tapestry  T.J. Maxx

Very poor diversification

The 3 months correlation between Tapestry and T.J. is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tapestry and The TJX Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TJX Companies and Tapestry 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 Tapestry are associated (or correlated) with T.J. Maxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TJX Companies has no effect on the direction of Tapestry i.e., Tapestry and T.J. Maxx go up and down completely randomly.

Pair Corralation between Tapestry and T.J. Maxx

Considering the 90-day investment horizon Tapestry is expected to generate 3.2 times more return on investment than T.J. Maxx. However, Tapestry is 3.2 times more volatile than The TJX Companies. It trades about 0.21 of its potential returns per unit of risk. The TJX Companies is currently generating about 0.07 per unit of risk. If you would invest  4,388  in Tapestry on September 21, 2024 and sell it today you would earn a total of  1,878  from holding Tapestry or generate 42.8% return on investment over 90 days.

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

Tapestry  vs.  The TJX Companies

Tapestry

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tapestry are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Tapestry reported solid returns over the last few months and may actually be approaching a breakup point.

TJX Companies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The TJX Companies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking indicators, T.J. Maxx is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tapestry and T.J. Maxx

The main advantage of trading using opposite Tapestry and T.J. Maxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tapestry position performs unexpectedly, T.J. Maxx 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 T.J. Maxx will offset losses from the drop in T.J. Maxx's long position.

The idea behind Tapestry and The TJX Companies 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..