Correlation Between United States and Deckers Outdoor

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

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

Diversification Opportunities for United States and Deckers Outdoor

0.49

Correlation Coefficient

United States  Deckers Outdoor

Very weak diversification

The 3 months correlation between United and Deckers is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor and United States 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 United States Steel are associated (or correlated) with Deckers Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deckers Outdoor has no effect on the direction of United States i.e., United States and Deckers Outdoor go up and down completely randomly.

Pair Corralation between United States and Deckers Outdoor

Assuming the 90 days trading horizon United States is expected to generate 27.61 times less return on investment than Deckers Outdoor. But when comparing it to its historical volatility, United States Steel is 1.05 times less risky than Deckers Outdoor. It trades about 0.01 of its potential returns per unit of risk. Deckers Outdoor is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  14,043  in Deckers Outdoor on September 16, 2024 and sell it today you would earn a total of  5,407  from holding Deckers Outdoor or generate 38.5% return on investment over 90 days.

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

United States Steel  vs.  Deckers Outdoor

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Deckers Outdoor

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deckers Outdoor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Deckers Outdoor

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

The idea behind United States Steel and Deckers Outdoor 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.