Correlation Between Academy Sports and McGrath RentCorp

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

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

Diversification Opportunities for Academy Sports and McGrath RentCorp

-0.67

Correlation Coefficient

Academy Sports  McGrath RentCorp

Excellent diversification

The 3 months correlation between Academy and McGrath is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Academy Sports Outdoors and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp and Academy Sports 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 Academy Sports Outdoors are associated (or correlated) with McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of Academy Sports i.e., Academy Sports and McGrath RentCorp go up and down completely randomly.

Pair Corralation between Academy Sports and McGrath RentCorp

Considering the 90-day investment horizon Academy Sports is expected to generate 4.13 times less return on investment than McGrath RentCorp. In addition to that, Academy Sports is 1.32 times more volatile than McGrath RentCorp. It trades about 0.03 of its total potential returns per unit of risk. McGrath RentCorp is currently generating about 0.16 per unit of volatility. If you would invest  10,480  in McGrath RentCorp on October 24, 2024 and sell it today you would earn a total of  1,764  from holding McGrath RentCorp or generate 16.83% return on investment over 90 days.

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

Academy Sports Outdoors  vs.  McGrath RentCorp

Academy Sports Outdoors

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Academy Sports Outdoors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Academy Sports is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

McGrath RentCorp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McGrath RentCorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, McGrath RentCorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Academy Sports and McGrath RentCorp

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

The idea behind Academy Sports Outdoors and McGrath RentCorp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.