Correlation Between Gap and Five Below

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

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

Diversification Opportunities for Gap and Five Below

0.93

Correlation Coefficient

Gap  Five Below

Almost no diversification

The @@bw1eo months correlation between Gap and Five is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Gap Inc and Five Below in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Below 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 Five Below. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Below has no effect on the direction of Gap i.e., Gap and Five Below go up and down completely randomly.

Pair Corralation between Gap and Five Below

Considering the 90-day investment horizon Gap Inc is expected to under-perform the Five Below. In addition to that, Gap is 1.88 times more volatile than Five Below. It trades about -0.25 of its total potential returns per unit of risk. Five Below is currently generating about -0.37 per unit of volatility. If you would invest  16,474  in Five Below on February 3, 2024 and sell it today you would lose (1,993) from holding Five Below or give up 12.1% of portfolio value over 90 days.

Time Period	@@bw1EO Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Gap Inc  vs.  Five Below

Gap Inc

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Gap Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Five Below

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Five Below has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Gap and Five Below

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

The idea behind Gap Inc and Five Below 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.