Correlation Between Big 5 and CPU SOFTWAREHOUSE

Can any of the company-specific risk be diversified away by investing in both Big 5 and CPU SOFTWAREHOUSE 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 CPU SOFTWAREHOUSE 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 CPU SOFTWAREHOUSE, you can compare the effects of market volatilities on Big 5 and CPU SOFTWAREHOUSE 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 CPU SOFTWAREHOUSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and CPU SOFTWAREHOUSE.

Diversification Opportunities for Big 5 and CPU SOFTWAREHOUSE

0.54

Correlation Coefficient

Big 5  CPU SOFTWAREHOUSE

Very weak diversification

The 3 months correlation between Big and CPU is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and CPU SOFTWAREHOUSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPU SOFTWAREHOUSE 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 CPU SOFTWAREHOUSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPU SOFTWAREHOUSE has no effect on the direction of Big 5 i.e., Big 5 and CPU SOFTWAREHOUSE go up and down completely randomly.

Pair Corralation between Big 5 and CPU SOFTWAREHOUSE

Assuming the 90 days horizon Big 5 is expected to generate 1.35 times less return on investment than CPU SOFTWAREHOUSE. In addition to that, Big 5 is 1.96 times more volatile than CPU SOFTWAREHOUSE. It trades about 0.02 of its total potential returns per unit of risk. CPU SOFTWAREHOUSE is currently generating about 0.05 per unit of volatility. If you would invest  91.00  in CPU SOFTWAREHOUSE on September 3, 2024 and sell it today you would earn a total of  5.00  from holding CPU SOFTWAREHOUSE or generate 5.49% return on investment over 90 days.

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

Big 5 Sporting  vs.  CPU SOFTWAREHOUSE

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.

CPU SOFTWAREHOUSE

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CPU SOFTWAREHOUSE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, CPU SOFTWAREHOUSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Big 5 and CPU SOFTWAREHOUSE

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

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