Correlation Between Nike and Auto Trader

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

By analyzing existing cross correlation between Nike Inc and Auto Trader Group, you can compare the effects of market volatilities on Nike and Auto Trader 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 Nike with a short position of Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Auto Trader.

Diversification Opportunities for Nike and Auto Trader

0.47

Correlation Coefficient

Nike  Auto Trader

Very weak diversification

The 3 months correlation between Nike and Auto is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and Nike 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 Nike Inc are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Nike i.e., Nike and Auto Trader go up and down completely randomly.

Pair Corralation between Nike and Auto Trader

Assuming the 90 days horizon Nike Inc is expected to generate 1.21 times more return on investment than Auto Trader. However, Nike is 1.21 times more volatile than Auto Trader Group. It trades about -0.24 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.3 per unit of risk. If you would invest  7,386  in Nike Inc on October 10, 2024 and sell it today you would lose (407.00) from holding Nike Inc or give up 5.51% of portfolio value over 90 days.

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

Nike Inc  vs.  Auto Trader Group

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic 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 Nike and Auto Trader

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

The idea behind Nike Inc and Auto Trader Group 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.