Correlation Between Provident and Academy Sports

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

By analyzing existing cross correlation between Provident Financial 7405 and Academy Sports Outdoors, you can compare the effects of market volatilities on Provident and Academy 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 Provident with a short position of Academy Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provident and Academy Sports.

Diversification Opportunities for Provident and Academy Sports

-0.25

Correlation Coefficient

Provident  Academy Sports

Very good diversification

The 3 months correlation between Provident and Academy is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Provident Financial 7405 and Academy Sports Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Academy Sports Outdoors and Provident 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 Provident Financial 7405 are associated (or correlated) with Academy Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Academy Sports Outdoors has no effect on the direction of Provident i.e., Provident and Academy Sports go up and down completely randomly.

Pair Corralation between Provident and Academy Sports

Assuming the 90 days trading horizon Provident Financial 7405 is expected to generate 0.59 times more return on investment than Academy Sports. However, Provident Financial 7405 is 1.7 times less risky than Academy Sports. It trades about 0.01 of its potential returns per unit of risk. Academy Sports Outdoors is currently generating about -0.04 per unit of risk. If you would invest  10,918  in Provident Financial 7405 on September 5, 2024 and sell it today you would earn a total of  15.00  from holding Provident Financial 7405 or generate 0.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	43.75%
Values	Daily Returns

Provident Financial 7405  vs.  Academy Sports Outdoors

Provident Financial 7405

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Provident Financial 7405 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Provident is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Academy Sports Outdoors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Academy Sports is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Provident and Academy Sports

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

The idea behind Provident Financial 7405 and Academy Sports Outdoors 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.