Correlation Between Tapestry and Xcel Brands

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

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

Diversification Opportunities for Tapestry and Xcel Brands

-0.44

Correlation Coefficient

Tapestry  Xcel Brands

Very good diversification

The 3 months correlation between Tapestry and Xcel is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tapestry and Xcel Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Brands 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 Xcel Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Brands has no effect on the direction of Tapestry i.e., Tapestry and Xcel Brands go up and down completely randomly.

Pair Corralation between Tapestry and Xcel Brands

Considering the 90-day investment horizon Tapestry is expected to generate 0.49 times more return on investment than Xcel Brands. However, Tapestry is 2.05 times less risky than Xcel Brands. It trades about 0.09 of its potential returns per unit of risk. Xcel Brands is currently generating about -0.01 per unit of risk. If you would invest  6,559  in Tapestry on December 27, 2024 and sell it today you would earn a total of  809.00  from holding Tapestry or generate 12.33% return on investment over 90 days.

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

Tapestry  vs.  Xcel Brands

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.

Xcel Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xcel Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Xcel Brands 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 Xcel Brands

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

The idea behind Tapestry and Xcel 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.