Correlation Between Deckers Outdoor and Crocs

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

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

Diversification Opportunities for Deckers Outdoor and Crocs

0.62

Correlation Coefficient

Deckers Outdoor  Crocs

Poor diversification

The 3 months correlation between Deckers and Crocs is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Deckers Outdoor and Crocs Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crocs Inc and Deckers Outdoor 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 Deckers Outdoor are associated (or correlated) with Crocs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crocs Inc has no effect on the direction of Deckers Outdoor i.e., Deckers Outdoor and Crocs go up and down completely randomly.

Pair Corralation between Deckers Outdoor and Crocs

Assuming the 90 days horizon Deckers Outdoor is expected to generate 0.87 times more return on investment than Crocs. However, Deckers Outdoor is 1.15 times less risky than Crocs. It trades about 0.15 of its potential returns per unit of risk. Crocs Inc is currently generating about 0.07 per unit of risk. If you would invest  13,390  in Deckers Outdoor on July 7, 2024 and sell it today you would earn a total of  815.00  from holding Deckers Outdoor or generate 6.09% return on investment over 90 days.

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

Deckers Outdoor  vs.  Crocs Inc

Deckers Outdoor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deckers Outdoor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Deckers Outdoor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Crocs Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Crocs Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Crocs is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Deckers Outdoor and Crocs

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

The idea behind Deckers Outdoor and Crocs Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.