Correlation Between American Outdoor and Johnson Outdoors

Can any of the company-specific risk be diversified away by investing in both American Outdoor 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 American Outdoor and Johnson Outdoors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Outdoor Brands and Johnson Outdoors, you can compare the effects of market volatilities on American Outdoor 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 American Outdoor with a short position of Johnson Outdoors. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Outdoor and Johnson Outdoors.

Diversification Opportunities for American Outdoor and Johnson Outdoors

-0.34

Correlation Coefficient

American Outdoor  Johnson Outdoors

Very good diversification

The 3 months correlation between American and Johnson is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding American Outdoor Brands and Johnson Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Outdoors and American Outdoor 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 American Outdoor Brands 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 American Outdoor i.e., American Outdoor and Johnson Outdoors go up and down completely randomly.

Pair Corralation between American Outdoor and Johnson Outdoors

Given the investment horizon of 90 days American Outdoor Brands is expected to generate 1.52 times more return on investment than Johnson Outdoors. However, American Outdoor is 1.52 times more volatile than Johnson Outdoors. It trades about 0.05 of its potential returns per unit of risk. Johnson Outdoors is currently generating about -0.05 per unit of risk. If you would invest  920.00  in American Outdoor Brands on September 3, 2024 and sell it today you would earn a total of  61.00  from holding American Outdoor Brands or generate 6.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American Outdoor Brands  vs.  Johnson Outdoors

American Outdoor Brands

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Outdoor Brands are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, American Outdoor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Johnson Outdoors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Johnson Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Johnson Outdoors is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Outdoor and Johnson Outdoors

The main advantage of trading using opposite American Outdoor and Johnson Outdoors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Outdoor 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 American Outdoor Brands 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.