Correlation Between Big 5 and Best Buy

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

Diversification Opportunities for Big 5 and Best Buy

0.76

Correlation Coefficient

Big 5  Best Buy

Poor diversification

The 3 months correlation between Big and Best is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Big 5 i.e., Big 5 and Best Buy go up and down completely randomly.

Pair Corralation between Big 5 and Best Buy

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Best Buy. In addition to that, Big 5 is 2.0 times more volatile than Best Buy Co. It trades about -0.07 of its total potential returns per unit of risk. Best Buy Co is currently generating about 0.03 per unit of volatility. If you would invest  7,449  in Best Buy Co on September 5, 2024 and sell it today you would earn a total of  1,448  from holding Best Buy Co or generate 19.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Big 5 Sporting  vs.  Best Buy Co

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. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Big 5 and Best Buy

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

The idea behind Big 5 Sporting and Best Buy Co 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.