Correlation Between Nike and Foot Locker
Can any of the company-specific risk be diversified away by investing in both Nike and Foot Locker 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 Foot Locker into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and Foot Locker, you can compare the effects of market volatilities on Nike and Foot Locker 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 Foot Locker. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Foot Locker.
Diversification Opportunities for Nike and Foot Locker
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nike and Foot is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Foot Locker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foot Locker 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 Foot Locker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foot Locker has no effect on the direction of Nike i.e., Nike and Foot Locker go up and down completely randomly.
Pair Corralation between Nike and Foot Locker
Considering the 90-day investment horizon Nike Inc is expected to generate 0.34 times more return on investment than Foot Locker. However, Nike Inc is 2.94 times less risky than Foot Locker. It trades about -0.06 of its potential returns per unit of risk. Foot Locker is currently generating about -0.07 per unit of risk. If you would invest 10,040 in Nike Inc on January 24, 2024 and sell it today you would lose (621.00) from holding Nike Inc or give up 6.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nike Inc vs. Foot Locker
Performance |
| Timeline |
| Nike Inc |
| Foot Locker |
Nike and Foot Locker Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nike and Foot Locker
The main advantage of trading using opposite Nike and Foot Locker positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike position performs unexpectedly, Foot Locker 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 Foot Locker will offset losses from the drop in Foot Locker's long position.The idea behind Nike Inc and Foot Locker 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.| Foot Locker vs. Abercrombie Fitch | Foot Locker vs. Gap Inc | Foot Locker vs. Urban Outfitters | Foot Locker vs. Childrens Place |
Check out your portfolio center.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.
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