Correlation Between Gap and Macys

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

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

Diversification Opportunities for Gap and Macys

0.5

Correlation Coefficient

Gap  Macys

Very weak diversification

The 3 months correlation between Gap and Macys is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc and Macys Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macys Inc and Gap 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 Gap Inc are associated (or correlated) with Macys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macys Inc has no effect on the direction of Gap i.e., Gap and Macys go up and down completely randomly.

Pair Corralation between Gap and Macys

Considering the 90-day investment horizon Gap Inc is expected to under-perform the Macys. In addition to that, Gap is 1.16 times more volatile than Macys Inc. It trades about -0.49 of its total potential returns per unit of risk. Macys Inc is currently generating about -0.18 per unit of volatility. If you would invest  1,999  in Macys Inc on January 28, 2024 and sell it today you would lose (156.00) from holding Macys Inc or give up 7.8% of portfolio value over 90 days.

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

Gap Inc  vs.  Macys Inc

Gap Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gap Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Gap may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Macys Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Macys Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Macys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Gap and Macys

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

The idea behind Gap Inc and Macys Inc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.