Correlation Between Leslies and Big 5
Can any of the company-specific risk be diversified away by investing in both Leslies and Big 5 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 Leslies and Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leslies and Big 5 Sporting, you can compare the effects of market volatilities on Leslies and Big 5 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 Leslies with a short position of Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leslies and Big 5.
Diversification Opportunities for Leslies and Big 5
Significant diversification
The 3 months correlation between Leslies and Big is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Leslies and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting and Leslies 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 Leslies are associated (or correlated) with Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Leslies i.e., Leslies and Big 5 go up and down completely randomly.
Pair Corralation between Leslies and Big 5
Given the investment horizon of 90 days Leslies is expected to under-perform the Big 5. But the stock apears to be less risky and, when comparing its historical volatility, Leslies is 1.01 times less risky than Big 5. The stock trades about -0.05 of its potential returns per unit of risk. The Big 5 Sporting is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 204.00 in Big 5 Sporting on October 31, 2024 and sell it today you would lose (43.00) from holding Big 5 Sporting or give up 21.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Leslies vs. Big 5 Sporting
Performance |
| Timeline |
| Leslies |
| Big 5 Sporting |
Leslies and Big 5 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Leslies and Big 5
The main advantage of trading using opposite Leslies and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leslies position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.| Leslies vs. Sally Beauty Holdings | Leslies vs. ODP Corp | Leslies vs. 1 800 FLOWERSCOM | Leslies vs. Caseys General Stores |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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