Correlation Between Gap, and Academy Sports

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

By analyzing existing cross correlation between The Gap, and Academy Sports Outdoors, you can compare the effects of market volatilities on Gap, and Academy Sports 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 Gap, with a short position of Academy Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap, and Academy Sports.

Diversification Opportunities for Gap, and Academy Sports

0.84

Correlation Coefficient

Gap,  Academy Sports

Very poor diversification

The 3 months correlation between Gap, and Academy is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding The Gap, and Academy Sports Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Academy Sports Outdoors and Gap, 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 The Gap, are associated (or correlated) with Academy Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Academy Sports Outdoors has no effect on the direction of Gap, i.e., Gap, and Academy Sports go up and down completely randomly.

Pair Corralation between Gap, and Academy Sports

Considering the 90-day investment horizon The Gap, is expected to generate 1.49 times more return on investment than Academy Sports. However, Gap, is 1.49 times more volatile than Academy Sports Outdoors. It trades about -0.03 of its potential returns per unit of risk. Academy Sports Outdoors is currently generating about -0.11 per unit of risk. If you would invest  2,340  in The Gap, on December 28, 2024 and sell it today you would lose (217.00) from holding The Gap, or give up 9.27% of portfolio value over 90 days.

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

The Gap,  vs.  Academy Sports Outdoors

Gap,

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Gap, has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Academy Sports Outdoors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Gap, and Academy Sports

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

The idea behind The Gap, and Academy Sports Outdoors 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.