Correlation Between Life Time and Nike
Can any of the company-specific risk be diversified away by investing in both Life Time and Nike 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 Life Time and Nike into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Life Time Group and Nike Inc, you can compare the effects of market volatilities on Life Time and Nike 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 Life Time with a short position of Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Life Time and Nike.
Diversification Opportunities for Life Time and Nike
Weak diversification
The 3 months correlation between Life and Nike is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Life Time Group and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Life Time 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 Life Time Group are associated (or correlated) with Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Life Time i.e., Life Time and Nike go up and down completely randomly.
Pair Corralation between Life Time and Nike
Considering the 90-day investment horizon Life Time Group is expected to generate 1.15 times more return on investment than Nike. However, Life Time is 1.15 times more volatile than Nike Inc. It trades about 0.1 of its potential returns per unit of risk. Nike Inc is currently generating about -0.06 per unit of risk. If you would invest 1,443 in Life Time Group on September 2, 2024 and sell it today you would earn a total of 984.00 from holding Life Time Group or generate 68.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Life Time Group vs. Nike Inc
Performance |
| Timeline |
| Life Time Group |
| Nike Inc |
Life Time and Nike Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Life Time and Nike
The main advantage of trading using opposite Life Time and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Life Time position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.The idea behind Life Time Group and Nike 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.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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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