Correlation Between American Outdoor and Madison Square

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

By analyzing existing cross correlation between American Outdoor Brands and Madison Square Garden, you can compare the effects of market volatilities on American Outdoor and Madison Square 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 American Outdoor with a short position of Madison Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Outdoor and Madison Square.

Diversification Opportunities for American Outdoor and Madison Square

0.8

Correlation Coefficient

American Outdoor  Madison Square

Very poor diversification

The 3 months correlation between American and Madison is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding American Outdoor Brands and Madison Square Garden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Square Garden and American Outdoor 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 American Outdoor Brands are associated (or correlated) with Madison Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Square Garden has no effect on the direction of American Outdoor i.e., American Outdoor and Madison Square go up and down completely randomly.

Pair Corralation between American Outdoor and Madison Square

Given the investment horizon of 90 days American Outdoor Brands is expected to under-perform the Madison Square. In addition to that, American Outdoor is 1.69 times more volatile than Madison Square Garden. It trades about -0.06 of its total potential returns per unit of risk. Madison Square Garden is currently generating about 0.02 per unit of volatility. If you would invest  3,325  in Madison Square Garden on December 27, 2024 and sell it today you would earn a total of  37.00  from holding Madison Square Garden or generate 1.11% return on investment over 90 days.

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

American Outdoor Brands  vs.  Madison Square Garden

American Outdoor Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Outdoor Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Madison Square Garden

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Square Garden are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Madison Square is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Outdoor and Madison Square

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

The idea behind American Outdoor Brands and Madison Square Garden 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.