Correlation Between Childrens Place and Foot Locker

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

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

Diversification Opportunities for Childrens Place and Foot Locker

-0.58

Correlation Coefficient

Childrens Place  Foot Locker

Excellent diversification

The 3 months correlation between Childrens and Foot is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Childrens Place and Foot Locker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foot Locker and Childrens Place 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 Childrens Place are associated (or correlated) with Foot Locker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foot Locker has no effect on the direction of Childrens Place i.e., Childrens Place and Foot Locker go up and down completely randomly.

Pair Corralation between Childrens Place and Foot Locker

Given the investment horizon of 90 days Childrens Place is expected to generate 3.19 times more return on investment than Foot Locker. However, Childrens Place is 3.19 times more volatile than Foot Locker. It trades about 0.09 of its potential returns per unit of risk. Foot Locker is currently generating about 0.19 per unit of risk. If you would invest  1,354  in Childrens Place on August 7, 2024 and sell it today you would earn a total of  111.00  from holding Childrens Place or generate 8.2% return on investment over 90 days.

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

Childrens Place  vs.  Foot Locker

Childrens Place

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Childrens Place are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Childrens Place exhibited solid returns over the last few months and may actually be approaching a breakup point.

Foot Locker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foot Locker has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Childrens Place and Foot Locker

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

The idea behind Childrens Place and Foot Locker 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.