Correlation Between Ralph Lauren and Nike

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Can any of the company-specific risk be diversified away by investing in both Ralph Lauren and Nike 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 Ralph Lauren and Nike into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ralph Lauren Corp and Nike Inc, you can compare the effects of market volatilities on Ralph Lauren and Nike 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 Ralph Lauren with a short position of Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ralph Lauren and Nike.

Diversification Opportunities for Ralph Lauren and Nike

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Ralph and Nike is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Ralph Lauren Corp and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Ralph Lauren 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 Ralph Lauren Corp are associated (or correlated) with Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Ralph Lauren i.e., Ralph Lauren and Nike go up and down completely randomly.

Pair Corralation between Ralph Lauren and Nike

Allowing for the 90-day total investment horizon Ralph Lauren Corp is expected to generate 1.04 times more return on investment than Nike. However, Ralph Lauren is 1.04 times more volatile than Nike Inc. It trades about 0.06 of its potential returns per unit of risk. Nike Inc is currently generating about 0.06 per unit of risk. If you would invest  9,380  in Ralph Lauren Corp on May 15, 2022 and sell it today you would earn a total of  504.00  from holding Ralph Lauren Corp or generate 5.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Ralph Lauren Corp  vs.  Nike Inc

 Performance (%) 
       Timeline  
Ralph Lauren Corp 
Ralph Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Ralph Lauren Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady essential indicators, Ralph Lauren is not utilizing all of its potentials. The newest stock price chaos, may contribute to medium-term losses for the stakeholders.

Ralph Price Channel

Nike Inc 
Nike Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Nike Price Channel

Ralph Lauren and Nike Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ralph Lauren and Nike

The main advantage of trading using opposite Ralph Lauren and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ralph Lauren position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.
The idea behind Ralph Lauren Corp and Nike 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.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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