Correlation Between BRP and Johnson Outdoors
Can any of the company-specific risk be diversified away by investing in both BRP and Johnson Outdoors 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 BRP and Johnson Outdoors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRP Inc and Johnson Outdoors, you can compare the effects of market volatilities on BRP and Johnson Outdoors 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 BRP with a short position of Johnson Outdoors. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRP and Johnson Outdoors.
Diversification Opportunities for BRP and Johnson Outdoors
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BRP and Johnson is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Johnson Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Outdoors and BRP 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 BRP Inc are associated (or correlated) with Johnson Outdoors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Outdoors has no effect on the direction of BRP i.e., BRP and Johnson Outdoors go up and down completely randomly.
Pair Corralation between BRP and Johnson Outdoors
Given the investment horizon of 90 days BRP Inc is expected to under-perform the Johnson Outdoors. But the stock apears to be less risky and, when comparing its historical volatility, BRP Inc is 1.37 times less risky than Johnson Outdoors. The stock trades about -0.21 of its potential returns per unit of risk. The Johnson Outdoors is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,259 in Johnson Outdoors on August 27, 2024 and sell it today you would earn a total of 78.00 from holding Johnson Outdoors or generate 2.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BRP Inc vs. Johnson Outdoors
Performance |
| Timeline |
| BRP Inc |
| Johnson Outdoors |
BRP and Johnson Outdoors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BRP and Johnson Outdoors
The main advantage of trading using opposite BRP and Johnson Outdoors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP position performs unexpectedly, Johnson Outdoors 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 Johnson Outdoors will offset losses from the drop in Johnson Outdoors' long position.The idea behind BRP Inc and Johnson Outdoors 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.| Johnson Outdoors vs. Vista Outdoor | Johnson Outdoors vs. Clarus Corp | Johnson Outdoors vs. Escalade Incorporated | Johnson Outdoors vs. JAKKS Pacific |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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