Correlation Between Big 5 and IDEXX Laboratories

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

Diversification Opportunities for Big 5 and IDEXX Laboratories

0.67

Correlation Coefficient

Big 5  IDEXX Laboratories

Poor diversification

The 3 months correlation between Big and IDEXX is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and IDEXX Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEXX Laboratories 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 IDEXX Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDEXX Laboratories has no effect on the direction of Big 5 i.e., Big 5 and IDEXX Laboratories go up and down completely randomly.

Pair Corralation between Big 5 and IDEXX Laboratories

Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the IDEXX Laboratories. In addition to that, Big 5 is 2.43 times more volatile than IDEXX Laboratories. It trades about -0.11 of its total potential returns per unit of risk. IDEXX Laboratories is currently generating about 0.08 per unit of volatility. If you would invest  40,450  in IDEXX Laboratories on September 15, 2024 and sell it today you would earn a total of  870.00  from holding IDEXX Laboratories or generate 2.15% return on investment over 90 days.

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

Big 5 Sporting  vs.  IDEXX Laboratories

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

IDEXX Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDEXX Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Big 5 and IDEXX Laboratories

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

The idea behind Big 5 Sporting and IDEXX Laboratories 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.