Correlation Between Nike and Reservoir Media

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

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

Diversification Opportunities for Nike and Reservoir Media

-0.55

Correlation Coefficient

Nike  Reservoir Media

Excellent diversification

The 3 months correlation between Nike and Reservoir is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Reservoir Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reservoir Media 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 Reservoir Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reservoir Media has no effect on the direction of Nike i.e., Nike and Reservoir Media go up and down completely randomly.

Pair Corralation between Nike and Reservoir Media

Considering the 90-day investment horizon Nike Inc is expected to under-perform the Reservoir Media. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.3 times less risky than Reservoir Media. The stock trades about -0.01 of its potential returns per unit of risk. The Reservoir Media is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  786.00  in Reservoir Media on September 15, 2024 and sell it today you would earn a total of  119.00  from holding Reservoir Media or generate 15.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Nike Inc  vs.  Reservoir Media

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.

Reservoir Media

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reservoir Media are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Reservoir Media reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nike and Reservoir Media

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

The idea behind Nike Inc and Reservoir Media 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .