Correlation Between Tapestry and Tandy Leather

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

By analyzing existing cross correlation between Tapestry and Tandy Leather Factory, you can compare the effects of market volatilities on Tapestry and Tandy Leather 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 Tandy Leather. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tapestry and Tandy Leather.

Diversification Opportunities for Tapestry and Tandy Leather

0.4

Correlation Coefficient

Tapestry  Tandy Leather

Very weak diversification

The 3 months correlation between Tapestry and Tandy is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tapestry and Tandy Leather Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandy Leather Factory 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 Tandy Leather. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandy Leather Factory has no effect on the direction of Tapestry i.e., Tapestry and Tandy Leather go up and down completely randomly.

Pair Corralation between Tapestry and Tandy Leather

Considering the 90-day investment horizon Tapestry is expected to generate 0.96 times more return on investment than Tandy Leather. However, Tapestry is 1.04 times less risky than Tandy Leather. It trades about 0.08 of its potential returns per unit of risk. Tandy Leather Factory is currently generating about -0.07 per unit of risk. If you would invest  6,554  in Tapestry on December 28, 2024 and sell it today you would earn a total of  721.00  from holding Tapestry or generate 11.0% return on investment over 90 days.

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

Tapestry  vs.  Tandy Leather Factory

Tapestry

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tapestry are ranked lower than 6 (%) 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.

Tandy Leather Factory

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tandy Leather Factory has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Tapestry and Tandy Leather

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

The idea behind Tapestry and Tandy Leather Factory 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.