Correlation Between Scholastic and Academy Sports

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

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

Diversification Opportunities for Scholastic and Academy Sports

0.2

Correlation Coefficient

Scholastic  Academy Sports

Modest diversification

The 3 months correlation between Scholastic and Academy is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Scholastic 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 Scholastic 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 Scholastic 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 Scholastic i.e., Scholastic and Academy Sports go up and down completely randomly.

Pair Corralation between Scholastic and Academy Sports

Given the investment horizon of 90 days Scholastic is expected to generate 1.4 times more return on investment than Academy Sports. However, Scholastic is 1.4 times more volatile than Academy Sports Outdoors. It trades about -0.04 of its potential returns per unit of risk. Academy Sports Outdoors is currently generating about -0.12 per unit of risk. If you would invest  2,108  in Scholastic on December 27, 2024 and sell it today you would lose (222.00) from holding Scholastic or give up 10.53% of portfolio value over 90 days.

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

Scholastic  vs.  Academy Sports Outdoors

Scholastic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Academy Sports Outdoors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Scholastic and Academy Sports

The main advantage of trading using opposite Scholastic and Academy Sports positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scholastic 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 Scholastic 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.