Correlation Between Murphy USA and Big 5

Can any of the company-specific risk be diversified away by investing in both Murphy USA and Big 5 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 Murphy USA and Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Murphy USA and Big 5 Sporting, you can compare the effects of market volatilities on Murphy USA and Big 5 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 Murphy USA with a short position of Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Murphy USA and Big 5.

Diversification Opportunities for Murphy USA and Big 5

0.81

Correlation Coefficient

Murphy USA  Big 5

Very poor diversification

The 3 months correlation between Murphy and Big is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Murphy USA and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting and Murphy USA 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 Murphy USA are associated (or correlated) with Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Murphy USA i.e., Murphy USA and Big 5 go up and down completely randomly.

Pair Corralation between Murphy USA and Big 5

Given the investment horizon of 90 days Murphy USA is expected to generate 0.6 times more return on investment than Big 5. However, Murphy USA is 1.67 times less risky than Big 5. It trades about -0.09 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.32 per unit of risk. If you would invest  50,468  in Murphy USA on December 27, 2024 and sell it today you would lose (4,711) from holding Murphy USA or give up 9.33% of portfolio value over 90 days.

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

Murphy USA  vs.  Big 5 Sporting

Murphy USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Murphy USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Murphy USA and Big 5

The main advantage of trading using opposite Murphy USA and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Murphy USA position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.

The idea behind Murphy USA and Big 5 Sporting 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.