Correlation Between Big 5 and National Vision

Can any of the company-specific risk be diversified away by investing in both Big 5 and National Vision 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 National Vision 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 National Vision Holdings, you can compare the effects of market volatilities on Big 5 and National Vision 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 National Vision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and National Vision.

Diversification Opportunities for Big 5 and National Vision

-0.8

Correlation Coefficient

Big 5  National Vision

Pay attention - limited upside

The 3 months correlation between Big and National is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and National Vision Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Vision Holdings 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 National Vision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Vision Holdings has no effect on the direction of Big 5 i.e., Big 5 and National Vision go up and down completely randomly.

Pair Corralation between Big 5 and National Vision

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the National Vision. But the stock apears to be less risky and, when comparing its historical volatility, Big 5 Sporting is 1.0 times less risky than National Vision. The stock trades about -0.3 of its potential returns per unit of risk. The National Vision Holdings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,010  in National Vision Holdings on December 28, 2024 and sell it today you would earn a total of  316.00  from holding National Vision Holdings or generate 31.29% return on investment over 90 days.

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

Big 5 Sporting  vs.  National Vision Holdings

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. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

National Vision Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Vision Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, National Vision exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big 5 and National Vision

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

The idea behind Big 5 Sporting and National Vision Holdings 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.