Correlation Between American Outdoor and Sportsquest

Can any of the company-specific risk be diversified away by investing in both American Outdoor and Sportsquest 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 Sportsquest 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 Sportsquest, you can compare the effects of market volatilities on American Outdoor and Sportsquest 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 Sportsquest. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Outdoor and Sportsquest.

Diversification Opportunities for American Outdoor and Sportsquest

-0.52

Correlation Coefficient

American Outdoor  Sportsquest

Excellent diversification

The 3 months correlation between American and Sportsquest is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding American Outdoor Brands and Sportsquest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sportsquest 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 Sportsquest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sportsquest has no effect on the direction of American Outdoor i.e., American Outdoor and Sportsquest go up and down completely randomly.

Pair Corralation between American Outdoor and Sportsquest

Given the investment horizon of 90 days American Outdoor is expected to generate 1.99 times less return on investment than Sportsquest. But when comparing it to its historical volatility, American Outdoor Brands is 8.53 times less risky than Sportsquest. It trades about 0.06 of its potential returns per unit of risk. Sportsquest is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  0.08  in Sportsquest on September 4, 2024 and sell it today you would lose (0.06) from holding Sportsquest or give up 75.0% of portfolio value over 90 days.

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

American Outdoor Brands  vs.  Sportsquest

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 unfluctuating basic indicators, American Outdoor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sportsquest

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sportsquest are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Sportsquest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Outdoor and Sportsquest

The main advantage of trading using opposite American Outdoor and Sportsquest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Outdoor position performs unexpectedly, Sportsquest 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 Sportsquest will offset losses from the drop in Sportsquest's long position.

The idea behind American Outdoor Brands and Sportsquest 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.