Correlation Between Big 5 and JD SPORTS
Can any of the company-specific risk be diversified away by investing in both Big 5 and JD SPORTS 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 Big 5 and JD SPORTS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and JD SPORTS FASH, you can compare the effects of market volatilities on Big 5 and JD SPORTS 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 Big 5 with a short position of JD SPORTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and JD SPORTS.
Diversification Opportunities for Big 5 and JD SPORTS
Very weak diversification
The 3 months correlation between Big and 9JD is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and JD SPORTS FASH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD SPORTS FASH and Big 5 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 Big 5 Sporting are associated (or correlated) with JD SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD SPORTS FASH has no effect on the direction of Big 5 i.e., Big 5 and JD SPORTS go up and down completely randomly.
Pair Corralation between Big 5 and JD SPORTS
Assuming the 90 days horizon Big 5 Sporting is expected to generate 0.8 times more return on investment than JD SPORTS. However, Big 5 Sporting is 1.26 times less risky than JD SPORTS. It trades about 0.07 of its potential returns per unit of risk. JD SPORTS FASH is currently generating about -0.17 per unit of risk. If you would invest 152.00 in Big 5 Sporting on September 5, 2024 and sell it today you would earn a total of 7.00 from holding Big 5 Sporting or generate 4.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Big 5 Sporting vs. JD SPORTS FASH
Performance |
| Timeline |
| Big 5 Sporting |
| JD SPORTS FASH |
Big 5 and JD SPORTS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and JD SPORTS
The main advantage of trading using opposite Big 5 and JD SPORTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, JD SPORTS 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 JD SPORTS will offset losses from the drop in JD SPORTS's long position.The idea behind Big 5 Sporting and JD SPORTS FASH 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.| JD SPORTS vs. RYU Apparel | JD SPORTS vs. Titan Machinery | JD SPORTS vs. Granite Construction | JD SPORTS vs. AM EAGLE OUTFITTERS |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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