Correlation Between Nike and Nike
Can any of the company-specific risk be diversified away by investing in both Nike 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 Nike and Nike into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and Nike Inc, you can compare the effects of market volatilities on Nike 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 Nike with a short position of Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Nike.
Diversification Opportunities for Nike and Nike
No risk reduction
The 3 months correlation between Nike and Nike is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Nike 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 Nike Inc 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 Nike i.e., Nike and Nike go up and down completely randomly.
Pair Corralation between Nike and Nike
Assuming the 90 days trading horizon Nike Inc is expected to under-perform the Nike. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.08 times less risky than Nike. The stock trades about -0.04 of its potential returns per unit of risk. The Nike Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 10,872 in Nike Inc on September 24, 2024 and sell it today you would lose (3,564) from holding Nike Inc or give up 32.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nike Inc vs. Nike Inc
Performance |
| Timeline |
| Nike Inc |
| Nike Inc |
Nike and Nike Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nike and Nike
The main advantage of trading using opposite Nike and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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