Correlation Between Adidas AG and Nike
Can any of the company-specific risk be diversified away by investing in both Adidas AG 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 Adidas AG and Nike into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adidas AG ADR and Nike Inc, you can compare the effects of market volatilities on Adidas AG 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 Adidas AG with a short position of Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adidas AG and Nike.
Diversification Opportunities for Adidas AG and Nike
Excellent diversification
The 3 months correlation between Adidas and Nike is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Adidas AG ADR and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Adidas AG 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 Adidas AG ADR 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 Adidas AG i.e., Adidas AG and Nike go up and down completely randomly.
Pair Corralation between Adidas AG and Nike
Assuming the 90 days horizon Adidas AG ADR is expected to generate 1.23 times more return on investment than Nike. However, Adidas AG is 1.23 times more volatile than Nike Inc. It trades about 0.07 of its potential returns per unit of risk. Nike Inc is currently generating about -0.04 per unit of risk. If you would invest 9,415 in Adidas AG ADR on January 24, 2024 and sell it today you would earn a total of 2,551 from holding Adidas AG ADR or generate 27.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Adidas AG ADR vs. Nike Inc
Performance |
| Timeline |
| Adidas AG ADR |
| Nike Inc |
Adidas AG and Nike Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Adidas AG and Nike
The main advantage of trading using opposite Adidas AG and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adidas AG 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.| Adidas AG vs. American Rebel Holdings | Adidas AG vs. American Rebel Holdings | Adidas AG vs. Nike Inc | Adidas AG vs. Skechers USA |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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