Correlation Between Big 5 and Genuine Parts

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

Diversification Opportunities for Big 5 and Genuine Parts

0.7

Correlation Coefficient

Big 5  Genuine Parts

Poor diversification

The 3 months correlation between Big and Genuine is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Genuine Parts Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts 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 Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Big 5 i.e., Big 5 and Genuine Parts go up and down completely randomly.

Pair Corralation between Big 5 and Genuine Parts

Given the investment horizon of 90 days Big 5 Sporting is expected to generate 1.35 times more return on investment than Genuine Parts. However, Big 5 is 1.35 times more volatile than Genuine Parts Co. It trades about -0.02 of its potential returns per unit of risk. Genuine Parts Co is currently generating about -0.04 per unit of risk. If you would invest  188.00  in Big 5 Sporting on August 30, 2024 and sell it today you would lose (18.00) from holding Big 5 Sporting or give up 9.57% of portfolio value over 90 days.

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

Big 5 Sporting  vs.  Genuine Parts Co

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

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 fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Genuine Parts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genuine Parts Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Big 5 and Genuine Parts

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

The idea behind Big 5 Sporting and Genuine Parts Co 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.