Correlation Between Five Below and Target

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

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

Diversification Opportunities for Five Below and Target

-0.2

Correlation Coefficient

Five Below  Target

Good diversification

The 3 months correlation between Five and Target is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Five Below and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Five Below 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 Five Below are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Five Below i.e., Five Below and Target go up and down completely randomly.

Pair Corralation between Five Below and Target

Given the investment horizon of 90 days Five Below is expected to under-perform the Target. In addition to that, Five Below is 1.34 times more volatile than Target. It trades about -0.36 of its total potential returns per unit of risk. Target is currently generating about -0.34 per unit of volatility. If you would invest  17,222  in Target on February 4, 2024 and sell it today you would lose (1,418) from holding Target or give up 8.23% of portfolio value over 90 days.

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

Five Below  vs.  Target

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.

Target

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Target may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Five Below and Target

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

The idea behind Five Below and Target 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.