Correlation Between Nike and NVR

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

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

Diversification Opportunities for Nike and NVR

0.72

Correlation Coefficient

Nike  NVR

Poor diversification

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

Pair Corralation between Nike and NVR

Considering the 90-day investment horizon Nike Inc is expected to under-perform the NVR. In addition to that, Nike is 1.34 times more volatile than NVR Inc. It trades about -0.02 of its total potential returns per unit of risk. NVR Inc is currently generating about 0.03 per unit of volatility. If you would invest  905,367  in NVR Inc on September 2, 2024 and sell it today you would earn a total of  18,191  from holding NVR Inc or generate 2.01% return on investment over 90 days.

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

Nike Inc  vs.  NVR Inc

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

NVR Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NVR Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, NVR is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Nike and NVR

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

The idea behind Nike Inc and NVR 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.