Correlation Between Reynolds Consumer and Nike

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

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

Diversification Opportunities for Reynolds Consumer and Nike

0.84

Correlation Coefficient

Reynolds Consumer  Nike

Very poor diversification

The 3 months correlation between Reynolds and Nike is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Reynolds Consumer Products and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Reynolds Consumer 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 Reynolds Consumer Products 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 Reynolds Consumer i.e., Reynolds Consumer and Nike go up and down completely randomly.

Pair Corralation between Reynolds Consumer and Nike

Given the investment horizon of 90 days Reynolds Consumer Products is expected to generate 0.85 times more return on investment than Nike. However, Reynolds Consumer Products is 1.17 times less risky than Nike. It trades about -0.2 of its potential returns per unit of risk. Nike Inc is currently generating about -0.27 per unit of risk. 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

Reynolds Consumer Products  vs.  Nike Inc

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.

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.

Pair Trading with Reynolds Consumer and Nike

The main advantage of trading using opposite Reynolds Consumer and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reynolds Consumer 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 Reynolds Consumer Products 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.