Correlation Between Big 5 and OReilly Automotive

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

Diversification Opportunities for Big 5 and OReilly Automotive

-0.39

Correlation Coefficient

Big 5  OReilly Automotive

Very good diversification

The 3 months correlation between Big and OReilly is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and OReilly Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OReilly Automotive 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 OReilly Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OReilly Automotive has no effect on the direction of Big 5 i.e., Big 5 and OReilly Automotive go up and down completely randomly.

Pair Corralation between Big 5 and OReilly Automotive

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the OReilly Automotive. In addition to that, Big 5 is 3.55 times more volatile than OReilly Automotive. It trades about 0.0 of its total potential returns per unit of risk. OReilly Automotive is currently generating about 0.13 per unit of volatility. If you would invest  113,681  in OReilly Automotive on September 1, 2024 and sell it today you would earn a total of  10,641  from holding OReilly Automotive or generate 9.36% 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.  OReilly Automotive

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

OReilly Automotive

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in OReilly Automotive are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, OReilly Automotive may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Big 5 and OReilly Automotive

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

The idea behind Big 5 Sporting and OReilly Automotive 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.