Correlation Between Big 5 and JD

Can any of the company-specific risk be diversified away by investing in both Big 5 and JD 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 Big 5 and JD into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and JD Inc, you can compare the effects of market volatilities on Big 5 and JD 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 Big 5 with a short position of JD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and JD.

Diversification Opportunities for Big 5 and JD

-0.02

Correlation Coefficient

Big 5  JD

Good diversification

The 3 months correlation between Big and JD is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and JD Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Inc and Big 5 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 Big 5 Sporting are associated (or correlated) with JD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Inc has no effect on the direction of Big 5 i.e., Big 5 and JD go up and down completely randomly.

Pair Corralation between Big 5 and JD

Assuming the 90 days horizon Big 5 is expected to generate 8.29 times less return on investment than JD. In addition to that, Big 5 is 1.09 times more volatile than JD Inc. It trades about 0.02 of its total potential returns per unit of risk. JD Inc is currently generating about 0.16 per unit of volatility. If you would invest  1,201  in JD Inc on September 4, 2024 and sell it today you would earn a total of  549.00  from holding JD Inc or generate 45.71% return on investment over 90 days.

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

Big 5 Sporting  vs.  JD Inc

Big 5 Sporting

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Big 5 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

JD Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, JD reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big 5 and JD

The main advantage of trading using opposite Big 5 and JD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, JD 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 JD will offset losses from the drop in JD's long position.

The idea behind Big 5 Sporting and JD 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.