Correlation Between Johnson Outdoors and Escalade Incorporated

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

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

Diversification Opportunities for Johnson Outdoors and Escalade Incorporated

-0.3

Correlation Coefficient

Johnson Outdoors  Escalade Incorporated

Very good diversification

The 3 months correlation between Johnson and Escalade is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Outdoors and Escalade Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Escalade Incorporated and Johnson Outdoors 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 Johnson Outdoors are associated (or correlated) with Escalade Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Escalade Incorporated has no effect on the direction of Johnson Outdoors i.e., Johnson Outdoors and Escalade Incorporated go up and down completely randomly.

Pair Corralation between Johnson Outdoors and Escalade Incorporated

Given the investment horizon of 90 days Johnson Outdoors is expected to under-perform the Escalade Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Johnson Outdoors is 1.05 times less risky than Escalade Incorporated. The stock trades about -0.18 of its potential returns per unit of risk. The Escalade Incorporated is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,404  in Escalade Incorporated on December 30, 2024 and sell it today you would earn a total of  126.00  from holding Escalade Incorporated or generate 8.97% return on investment over 90 days.

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

Johnson Outdoors  vs.  Escalade Incorporated

Johnson Outdoors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Johnson Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Escalade Incorporated

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Escalade Incorporated are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Escalade Incorporated may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Johnson Outdoors and Escalade Incorporated

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

The idea behind Johnson Outdoors and Escalade Incorporated 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.