Correlation Between Best Buy and Barnes Noble

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

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

Diversification Opportunities for Best Buy and Barnes Noble

0.84

Correlation Coefficient

Best Buy  Barnes Noble

Very poor diversification

The 1 month correlation between Best and Barnes is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Barnes Noble Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Noble Education and Best Buy 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 Best Buy Co are associated (or correlated) with Barnes Noble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Noble Education has no effect on the direction of Best Buy i.e., Best Buy and Barnes Noble go up and down completely randomly.

Pair Corralation between Best Buy and Barnes Noble

Considering the 90-day investment horizon Best Buy Co is expected to generate 0.1 times more return on investment than Barnes Noble. However, Best Buy Co is 10.06 times less risky than Barnes Noble. It trades about -0.22 of its potential returns per unit of risk. Barnes Noble Education is currently generating about -0.22 per unit of risk. If you would invest  8,006  in Best Buy Co on January 26, 2024 and sell it today you would lose (563.00) from holding Best Buy Co or give up 7.03% of portfolio value over 90 days.

Time Period	1 Month [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Best Buy Co  vs.  Barnes Noble Education

Best Buy

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Barnes Noble Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barnes Noble Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Best Buy and Barnes Noble

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

The idea behind Best Buy Co and Barnes Noble Education 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .