Correlation Between Big 5 and Pet Acquisition
Can any of the company-specific risk be diversified away by investing in both Big 5 and Pet Acquisition 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 Pet Acquisition 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 Pet Acquisition LLC, you can compare the effects of market volatilities on Big 5 and Pet Acquisition 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 Pet Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Pet Acquisition.
Diversification Opportunities for Big 5 and Pet Acquisition
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Big and Pet is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Pet Acquisition LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pet Acquisition LLC 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 Pet Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pet Acquisition LLC has no effect on the direction of Big 5 i.e., Big 5 and Pet Acquisition go up and down completely randomly.
Pair Corralation between Big 5 and Pet Acquisition
Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Pet Acquisition. But the stock apears to be less risky and, when comparing its historical volatility, Big 5 Sporting is 1.41 times less risky than Pet Acquisition. The stock trades about -0.07 of its potential returns per unit of risk. The Pet Acquisition LLC is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,051 in Pet Acquisition LLC on August 30, 2024 and sell it today you would lose (621.00) from holding Pet Acquisition LLC or give up 59.09% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big 5 Sporting vs. Pet Acquisition LLC
Performance |
| Timeline |
| Big 5 Sporting |
| Pet Acquisition LLC |
Big 5 and Pet Acquisition Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and Pet Acquisition
The main advantage of trading using opposite Big 5 and Pet Acquisition positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Pet Acquisition 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 Pet Acquisition will offset losses from the drop in Pet Acquisition's long position.The idea behind Big 5 Sporting and Pet Acquisition LLC 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.| Pet Acquisition vs. RH | Pet Acquisition vs. Dicks Sporting Goods | Pet Acquisition vs. Best Buy Co | Pet Acquisition vs. AutoZone |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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