Correlation Between Nasdaq 100 and Academy Sports

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 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 Nasdaq 100 and Academy Sports into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 and Academy Sports Outdoors, you can compare the effects of market volatilities on Nasdaq 100 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 Nasdaq 100 with a short position of Academy Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Academy Sports.

Diversification Opportunities for Nasdaq 100 and Academy Sports

-0.26

Correlation Coefficient

Nasdaq 100  Academy Sports

Very good diversification

The 3 months correlation between Nasdaq and Academy is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100 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 Nasdaq 100 i.e., Nasdaq 100 and Academy Sports go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Academy Sports

Assuming the 90 days trading horizon Nasdaq 100 is expected to generate 5.79 times less return on investment than Academy Sports. But when comparing it to its historical volatility, Nasdaq 100 is 1.55 times less risky than Academy Sports. It trades about 0.16 of its potential returns per unit of risk. Academy Sports Outdoors is currently generating about 0.61 of returns per unit of risk over similar time horizon. If you would invest  4,792  in Academy Sports Outdoors on September 27, 2024 and sell it today you would earn a total of  1,325  from holding Academy Sports Outdoors or generate 27.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Nasdaq 100  vs.  Academy Sports Outdoors

Pair Trading with Nasdaq 100 and Academy Sports

The main advantage of trading using opposite Nasdaq 100 and Academy Sports positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 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 Nasdaq 100 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.