Correlation Between Potbelly and Nike

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

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

Diversification Opportunities for Potbelly and Nike

0.48

Correlation Coefficient

Potbelly  Nike

Very weak diversification

The 3 months correlation between Potbelly and Nike is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Potbelly Co and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Potbelly 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 Potbelly Co are associated (or correlated) with Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Potbelly i.e., Potbelly and Nike go up and down completely randomly.

Pair Corralation between Potbelly and Nike

Given the investment horizon of 90 days Potbelly Co is expected to generate 1.95 times more return on investment than Nike. However, Potbelly is 1.95 times more volatile than Nike Inc. It trades about 0.02 of its potential returns per unit of risk. Nike Inc is currently generating about -0.11 per unit of risk. If you would invest  925.00  in Potbelly Co on December 28, 2024 and sell it today you would earn a total of  9.00  from holding Potbelly Co or generate 0.97% return on investment over 90 days.

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

Potbelly Co  vs.  Nike Inc

Potbelly

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Potbelly Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Potbelly may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nike Inc

Risk-Adjusted Performance

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 conflicting performance in the last few months, the Stock's forward-looking signals remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Potbelly and Nike

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

The idea behind Potbelly Co and Nike Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.