Correlation Between Tapestry and Block

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

Diversification Opportunities for Tapestry and Block

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Tapestry and Block is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tapestry and Block Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Block Inc and Tapestry 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 Tapestry are associated (or correlated) with Block. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Block Inc has no effect on the direction of Tapestry i.e., Tapestry and Block go up and down completely randomly.

Pair Corralation between Tapestry and Block

Considering the 90-day investment horizon Tapestry is expected to generate 1.07 times less return on investment than Block. But when comparing it to its historical volatility, Tapestry is 1.98 times less risky than Block. It trades about 0.39 of its potential returns per unit of risk. Block Inc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,391  in Block Inc on September 4, 2022 and sell it today you would earn a total of  1,427  from holding Block Inc or generate 26.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

Tapestry  vs.  Block Inc

 Performance (%) 
       Timeline  
Tapestry 
Tapestry Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Tapestry are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Tapestry reported solid returns over the last few months and may actually be approaching a breakup point.

Tapestry Price Channel

Block Inc 
Block Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Block may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Block Price Channel

Tapestry and Block Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tapestry and Block

The main advantage of trading using opposite Tapestry and Block positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tapestry position performs unexpectedly, Block 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 Block will offset losses from the drop in Block's long position.
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The idea behind Tapestry and Block 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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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 Commodity Channel Index module to use Commodity Channel Index to analyze current equity momentum.

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