Correlation Between Nike and Reynolds Consumer

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

By analyzing existing cross correlation between Nike Inc and Reynolds Consumer Products, you can compare the effects of market volatilities on Nike and Reynolds Consumer 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 Reynolds Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Reynolds Consumer.

Diversification Opportunities for Nike and Reynolds Consumer

0.84

Correlation Coefficient

Nike  Reynolds Consumer

Very poor diversification

The 3 months correlation between Nike and Reynolds is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Reynolds Consumer Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reynolds Consumer 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 Reynolds Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reynolds Consumer has no effect on the direction of Nike i.e., Nike and Reynolds Consumer go up and down completely randomly.

Pair Corralation between Nike and Reynolds Consumer

Considering the 90-day investment horizon Nike Inc is expected to under-perform the Reynolds Consumer. In addition to that, Nike is 1.17 times more volatile than Reynolds Consumer Products. It trades about -0.27 of its total potential returns per unit of risk. Reynolds Consumer Products is currently generating about -0.2 per unit of volatility. If you would invest  2,776  in Reynolds Consumer Products on October 6, 2024 and sell it today you would lose (117.00) from holding Reynolds Consumer Products or give up 4.21% of portfolio value over 90 days.

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

Nike Inc  vs.  Reynolds Consumer Products

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. In spite of latest conflicting performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Reynolds Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reynolds Consumer Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Nike and Reynolds Consumer

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

The idea behind Nike Inc and Reynolds Consumer Products 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.