Correlation Between Tractor Supply and Big 5

Can any of the company-specific risk be diversified away by investing in both Tractor Supply and Big 5 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 Tractor Supply and Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tractor Supply and Big 5 Sporting, you can compare the effects of market volatilities on Tractor Supply and Big 5 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 Tractor Supply with a short position of Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tractor Supply and Big 5.

Diversification Opportunities for Tractor Supply and Big 5

0.11

Correlation Coefficient

Tractor Supply  Big 5

Average diversification

The 3 months correlation between Tractor and Big is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Tractor Supply and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting and Tractor Supply 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 Tractor Supply are associated (or correlated) with Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Tractor Supply i.e., Tractor Supply and Big 5 go up and down completely randomly.

Pair Corralation between Tractor Supply and Big 5

Assuming the 90 days horizon Tractor Supply is expected to generate 1.98 times less return on investment than Big 5. But when comparing it to its historical volatility, Tractor Supply is 4.26 times less risky than Big 5. It trades about 0.07 of its potential returns per unit of risk. Big 5 Sporting is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  169.00  in Big 5 Sporting on September 25, 2024 and sell it today you would lose (6.00) from holding Big 5 Sporting or give up 3.55% of portfolio value over 90 days.

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

Tractor Supply  vs.  Big 5 Sporting

Tractor Supply

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tractor Supply are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tractor Supply may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Big 5 Sporting

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big 5 Sporting are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Big 5 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tractor Supply and Big 5

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

The idea behind Tractor Supply and Big 5 Sporting 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.