Correlation Between Big 5 and Joann

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

Diversification Opportunities for Big 5 and Joann

0.72

Correlation Coefficient

Big 5  Joann

Poor diversification

The 3 months correlation between Big and Joann is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Joann Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Joann 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 Joann. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Joann Inc has no effect on the direction of Big 5 i.e., Big 5 and Joann go up and down completely randomly.

Pair Corralation between Big 5 and Joann

Given the investment horizon of 90 days Big 5 Sporting is expected to generate 0.7 times more return on investment than Joann. However, Big 5 Sporting is 1.43 times less risky than Joann. It trades about -0.05 of its potential returns per unit of risk. Joann Inc is currently generating about -0.09 per unit of risk. If you would invest  799.00  in Big 5 Sporting on September 25, 2024 and sell it today you would lose (630.00) from holding Big 5 Sporting or give up 78.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	27.97%
Values	Daily Returns

Big 5 Sporting  vs.  Joann Inc

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 fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Joann Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Joann Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Joann is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Big 5 and Joann

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

The idea behind Big 5 Sporting and Joann 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.