Correlation Between Shoe Carnival and Five Below

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

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

Diversification Opportunities for Shoe Carnival and Five Below

-0.38

Correlation Coefficient

Shoe Carnival  Five Below

Very good diversification

The 3 months correlation between Shoe and Five is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Shoe Carnival and Five Below in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Below and Shoe Carnival 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 Shoe Carnival 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 Shoe Carnival i.e., Shoe Carnival and Five Below go up and down completely randomly.

Pair Corralation between Shoe Carnival and Five Below

Given the investment horizon of 90 days Shoe Carnival is expected to generate 1.22 times more return on investment than Five Below. However, Shoe Carnival is 1.22 times more volatile than Five Below. It trades about -0.07 of its potential returns per unit of risk. Five Below is currently generating about -0.37 per unit of risk. If you would invest  3,521  in Shoe Carnival on February 3, 2024 and sell it today you would lose (116.00) from holding Shoe Carnival or give up 3.29% of portfolio value over 90 days.

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

Shoe Carnival  vs.  Five Below

Shoe Carnival

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shoe Carnival are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Shoe Carnival disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 unfluctuating 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 Shoe Carnival and Five Below

The main advantage of trading using opposite Shoe Carnival and Five Below positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shoe Carnival 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 Shoe Carnival 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..