Correlation Between JD Sports and Smith Douglas

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

Diversification Opportunities for JD Sports and Smith Douglas

0.12

Correlation Coefficient

JD Sports  Smith Douglas

Average diversification

The 3 months correlation between JDDSF and Smith is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Smith Douglas Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Douglas Homes 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 Smith Douglas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Douglas Homes has no effect on the direction of JD Sports i.e., JD Sports and Smith Douglas go up and down completely randomly.

Pair Corralation between JD Sports and Smith Douglas

Assuming the 90 days horizon JD Sports is expected to generate 1.26 times less return on investment than Smith Douglas. In addition to that, JD Sports is 1.53 times more volatile than Smith Douglas Homes. It trades about 0.03 of its total potential returns per unit of risk. Smith Douglas Homes is currently generating about 0.06 per unit of volatility. If you would invest  2,400  in Smith Douglas Homes on September 16, 2024 and sell it today you would earn a total of  837.00  from holding Smith Douglas Homes or generate 34.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	47.38%
Values	Daily Returns

JD Sports Fashion  vs.  Smith Douglas Homes

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical 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 JD Sports and Smith Douglas

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

The idea behind JD Sports Fashion and Smith Douglas Homes 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 Stocks Directory module to find actively traded stocks across global markets.