Correlation Between Steven Madden and Continental

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

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

Diversification Opportunities for Steven Madden and Continental

0.06

Correlation Coefficient

Steven Madden  Continental

Significant diversification

The 3 months correlation between Steven and Continental is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Steven Madden and Caleres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental and Steven Madden 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 Steven Madden are associated (or correlated) with Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental has no effect on the direction of Steven Madden i.e., Steven Madden and Continental go up and down completely randomly.

Pair Corralation between Steven Madden and Continental

Given the investment horizon of 90 days Steven Madden is expected to generate 0.6 times more return on investment than Continental. However, Steven Madden is 1.67 times less risky than Continental. It trades about -0.17 of its potential returns per unit of risk. Caleres is currently generating about -0.18 per unit of risk. If you would invest  4,242  in Steven Madden on February 1, 2024 and sell it today you would lose (201.00) from holding Steven Madden or give up 4.74% of portfolio value over 90 days.

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

Steven Madden  vs.  Caleres

Steven Madden

Risk-Adjusted Performance

0 of 100

Very Weak

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

Continental

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caleres are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Continental disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steven Madden and Continental

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

The idea behind Steven Madden and Caleres 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.