Correlation Between Brunswick and Deckers Outdoor

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

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

Diversification Opportunities for Brunswick and Deckers Outdoor

0.66

Correlation Coefficient

Brunswick  Deckers Outdoor

Poor diversification

The 3 months correlation between Brunswick and Deckers is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Brunswick and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor and Brunswick 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 Brunswick 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 Brunswick i.e., Brunswick and Deckers Outdoor go up and down completely randomly.

Pair Corralation between Brunswick and Deckers Outdoor

Allowing for the 90-day total investment horizon Brunswick is expected to under-perform the Deckers Outdoor. But the stock apears to be less risky and, when comparing its historical volatility, Brunswick is 1.04 times less risky than Deckers Outdoor. The stock trades about -0.07 of its potential returns per unit of risk. The Deckers Outdoor is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  86,947  in Deckers Outdoor on January 27, 2024 and sell it today you would lose (3,601) from holding Deckers Outdoor or give up 4.14% of portfolio value over 90 days.

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

Brunswick  vs.  Deckers Outdoor

Brunswick

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brunswick has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Brunswick is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Deckers Outdoor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, Deckers Outdoor may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Brunswick and Deckers Outdoor

The main advantage of trading using opposite Brunswick and Deckers Outdoor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brunswick 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 Brunswick 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.