Correlation Between PENSKE and JD Sports

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

By analyzing existing cross correlation between PENSKE AUTOMOTIVE GROUP and JD Sports Fashion, you can compare the effects of market volatilities on PENSKE and JD Sports 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 PENSKE with a short position of JD Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of PENSKE and JD Sports.

Diversification Opportunities for PENSKE and JD Sports

0.51

Correlation Coefficient

PENSKE  JD Sports

Very weak diversification

The 3 months correlation between PENSKE and JDDSF is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding PENSKE AUTOMOTIVE GROUP and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion and PENSKE 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 PENSKE AUTOMOTIVE GROUP are associated (or correlated) with JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of PENSKE i.e., PENSKE and JD Sports go up and down completely randomly.

Pair Corralation between PENSKE and JD Sports

Assuming the 90 days trading horizon PENSKE AUTOMOTIVE GROUP is expected to generate 0.12 times more return on investment than JD Sports. However, PENSKE AUTOMOTIVE GROUP is 8.43 times less risky than JD Sports. It trades about -0.07 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.04 per unit of risk. If you would invest  9,842  in PENSKE AUTOMOTIVE GROUP on September 26, 2024 and sell it today you would lose (131.00) from holding PENSKE AUTOMOTIVE GROUP or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

PENSKE AUTOMOTIVE GROUP  vs.  JD Sports Fashion

PENSKE AUTOMOTIVE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PENSKE AUTOMOTIVE GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PENSKE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD Sports is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PENSKE and JD Sports

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

The idea behind PENSKE AUTOMOTIVE GROUP and JD Sports Fashion 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.