Correlation Between Big 5 and SPORT LISBOA

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

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

Diversification Opportunities for Big 5 and SPORT LISBOA

-0.37

Correlation Coefficient

Big 5  SPORT LISBOA

Very good diversification

The 3 months correlation between Big and SPORT is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and SPORT LISBOA E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPORT LISBOA E and Big 5 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 Big 5 Sporting are associated (or correlated) with SPORT LISBOA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPORT LISBOA E has no effect on the direction of Big 5 i.e., Big 5 and SPORT LISBOA go up and down completely randomly.

Pair Corralation between Big 5 and SPORT LISBOA

Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the SPORT LISBOA. In addition to that, Big 5 is 1.02 times more volatile than SPORT LISBOA E. It trades about -0.27 of its total potential returns per unit of risk. SPORT LISBOA E is currently generating about 0.05 per unit of volatility. If you would invest  313.00  in SPORT LISBOA E on December 28, 2024 and sell it today you would earn a total of  24.00  from holding SPORT LISBOA E or generate 7.67% return on investment over 90 days.

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

Big 5 Sporting  vs.  SPORT LISBOA E

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 uncertain 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.

SPORT LISBOA E

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPORT LISBOA E are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SPORT LISBOA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Big 5 and SPORT LISBOA

The main advantage of trading using opposite Big 5 and SPORT LISBOA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, SPORT LISBOA 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 SPORT LISBOA will offset losses from the drop in SPORT LISBOA's long position.

The idea behind Big 5 Sporting and SPORT LISBOA E 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.