Correlation Between Big 5 and Williams Sonoma

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

Diversification Opportunities for Big 5 and Williams Sonoma

0.59

Correlation Coefficient

Big 5  Williams Sonoma

Very weak diversification

The 3 months correlation between Big and Williams is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Williams Sonoma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Williams Sonoma 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 Williams Sonoma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Williams Sonoma has no effect on the direction of Big 5 i.e., Big 5 and Williams Sonoma go up and down completely randomly.

Pair Corralation between Big 5 and Williams Sonoma

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Williams Sonoma. In addition to that, Big 5 is 1.18 times more volatile than Williams Sonoma. It trades about -0.3 of its total potential returns per unit of risk. Williams Sonoma is currently generating about -0.07 per unit of volatility. If you would invest  18,598  in Williams Sonoma on December 28, 2024 and sell it today you would lose (2,156) from holding Williams Sonoma or give up 11.59% of portfolio value over 90 days.

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

Big 5 Sporting  vs.  Williams Sonoma

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.

Williams Sonoma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Williams Sonoma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Big 5 and Williams Sonoma

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

The idea behind Big 5 Sporting and Williams Sonoma 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.