Correlation Between BOSTON BEER and Big 5

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

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

Diversification Opportunities for BOSTON BEER and Big 5

0.77

Correlation Coefficient

BOSTON BEER  Big 5

Poor diversification

The 3 months correlation between BOSTON and Big is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BOSTON BEER A 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 BOSTON BEER 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 BOSTON BEER A 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 BOSTON BEER i.e., BOSTON BEER and Big 5 go up and down completely randomly.

Pair Corralation between BOSTON BEER and Big 5

Assuming the 90 days trading horizon BOSTON BEER A is expected to generate 0.52 times more return on investment than Big 5. However, BOSTON BEER A is 1.93 times less risky than Big 5. It trades about -0.2 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.26 per unit of risk. If you would invest  28,440  in BOSTON BEER A on December 29, 2024 and sell it today you would lose (6,360) from holding BOSTON BEER A or give up 22.36% of portfolio value over 90 days.

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

BOSTON BEER A   vs.  Big 5 Sporting

BOSTON BEER A

Risk-Adjusted Performance

Very Weak

Over the last 90 days BOSTON BEER A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BOSTON BEER and Big 5

The main advantage of trading using opposite BOSTON BEER and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BOSTON BEER 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 BOSTON BEER A 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.