Correlation Between JD Sports and Davis Commodities

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

By analyzing existing cross correlation between JD Sports Fashion and Davis Commodities Limited, you can compare the effects of market volatilities on JD Sports and Davis Commodities 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 JD Sports with a short position of Davis Commodities. Check out your portfolio center. Please also check ongoing floating volatility patterns of JD Sports and Davis Commodities.

Diversification Opportunities for JD Sports and Davis Commodities

0.46

Correlation Coefficient

JD Sports  Davis Commodities

Very weak diversification

The 3 months correlation between JDDSF and Davis is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Davis Commodities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Commodities and JD Sports 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 JD Sports Fashion are associated (or correlated) with Davis Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Commodities has no effect on the direction of JD Sports i.e., JD Sports and Davis Commodities go up and down completely randomly.

Pair Corralation between JD Sports and Davis Commodities

Assuming the 90 days horizon JD Sports Fashion is expected to under-perform the Davis Commodities. But the pink sheet apears to be less risky and, when comparing its historical volatility, JD Sports Fashion is 1.93 times less risky than Davis Commodities. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Davis Commodities Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  110.00  in Davis Commodities Limited on October 6, 2024 and sell it today you would lose (1.00) from holding Davis Commodities Limited or give up 0.91% of portfolio value over 90 days.

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

JD Sports Fashion  vs.  Davis Commodities Limited

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD Sports is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Davis Commodities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Commodities Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental indicators, Davis Commodities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with JD Sports and Davis Commodities

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

The idea behind JD Sports Fashion and Davis Commodities Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.