Correlation Between Nike and Boot Barn

Can any of the company-specific risk be diversified away by investing in both Nike and Boot Barn 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 Nike and Boot Barn into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nike Inc and Boot Barn Holdings, you can compare the effects of market volatilities on Nike and Boot Barn 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 Nike with a short position of Boot Barn. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Boot Barn.

Diversification Opportunities for Nike and Boot Barn

0.81

Correlation Coefficient

Nike  Boot Barn

Very poor diversification

The 3 months correlation between Nike and Boot is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Boot Barn Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boot Barn Holdings and Nike 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 Nike Inc are associated (or correlated) with Boot Barn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boot Barn Holdings has no effect on the direction of Nike i.e., Nike and Boot Barn go up and down completely randomly.

Pair Corralation between Nike and Boot Barn

Considering the 90-day investment horizon Nike Inc is expected to generate 0.54 times more return on investment than Boot Barn. However, Nike Inc is 1.85 times less risky than Boot Barn. It trades about -0.02 of its potential returns per unit of risk. Boot Barn Holdings is currently generating about -0.02 per unit of risk. If you would invest  8,023  in Nike Inc on September 17, 2024 and sell it today you would lose (298.00) from holding Nike Inc or give up 3.71% of portfolio value over 90 days.

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

Nike Inc  vs.  Boot Barn Holdings

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Boot Barn Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Boot Barn Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Boot Barn is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Nike and Boot Barn

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

The idea behind Nike Inc and Boot Barn Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.