Correlation Between Dicks Sporting and Macys

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

By analyzing existing cross correlation between Dicks Sporting Goods and Macys Inc, you can compare the effects of market volatilities on Dicks Sporting and Macys 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 Dicks Sporting with a short position of Macys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dicks Sporting and Macys.

Diversification Opportunities for Dicks Sporting and Macys

0.8

Correlation Coefficient

Dicks Sporting  Macys

Very poor diversification

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

Pair Corralation between Dicks Sporting and Macys

Considering the 90-day investment horizon Dicks Sporting is expected to generate 1.06 times less return on investment than Macys. But when comparing it to its historical volatility, Dicks Sporting Goods is 1.2 times less risky than Macys. It trades about 0.1 of its potential returns per unit of risk. Macys Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,552  in Macys Inc on September 29, 2024 and sell it today you would earn a total of  202.00  from holding Macys Inc or generate 13.02% return on investment over 90 days.

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

Dicks Sporting Goods  vs.  Macys Inc

Dicks Sporting Goods

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dicks Sporting Goods are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward-looking signals, Dicks Sporting unveiled solid returns over the last few months and may actually be approaching a breakup point.

Macys Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Macys Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Macys displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dicks Sporting and Macys

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

The idea behind Dicks Sporting Goods and Macys Inc 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.