Correlation Between Zumiez and Childrens Place

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

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

Diversification Opportunities for Zumiez and Childrens Place

0.59

Correlation Coefficient

Zumiez  Childrens Place

Very weak diversification

The 3 months correlation between Zumiez and Childrens is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Zumiez Inc and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place and Zumiez 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 Zumiez Inc are associated (or correlated) with Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of Zumiez i.e., Zumiez and Childrens Place go up and down completely randomly.

Pair Corralation between Zumiez and Childrens Place

Given the investment horizon of 90 days Zumiez Inc is expected to generate 0.5 times more return on investment than Childrens Place. However, Zumiez Inc is 2.02 times less risky than Childrens Place. It trades about 0.02 of its potential returns per unit of risk. Childrens Place is currently generating about -0.3 per unit of risk. If you would invest  1,691  in Zumiez Inc on February 2, 2024 and sell it today you would earn a total of  21.00  from holding Zumiez Inc or generate 1.24% return on investment over 90 days.

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

Zumiez Inc  vs.  Childrens Place

Zumiez Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Childrens Place

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Childrens Place has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental 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 Zumiez and Childrens Place

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

The idea behind Zumiez Inc and Childrens Place 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.