Correlation Between Best Buy and Nitori Holdings

Can any of the company-specific risk be diversified away by investing in both Best Buy and Nitori Holdings 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 Nitori Holdings 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 Nitori Holdings Co, you can compare the effects of market volatilities on Best Buy and Nitori Holdings 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 Nitori Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Nitori Holdings.

Diversification Opportunities for Best Buy and Nitori Holdings

0.68

Correlation Coefficient

Best Buy  Nitori Holdings

Poor diversification

The 3 months correlation between Best and Nitori is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Nitori Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nitori Holdings 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 Nitori Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nitori Holdings has no effect on the direction of Best Buy i.e., Best Buy and Nitori Holdings go up and down completely randomly.

Pair Corralation between Best Buy and Nitori Holdings

Considering the 90-day investment horizon Best Buy is expected to generate 36.6 times less return on investment than Nitori Holdings. But when comparing it to its historical volatility, Best Buy Co is 11.25 times less risky than Nitori Holdings. It trades about 0.03 of its potential returns per unit of risk. Nitori Holdings Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,775  in Nitori Holdings Co on January 24, 2024 and sell it today you would earn a total of  3,505  from holding Nitori Holdings Co or generate 32.53% return on investment over 90 days.

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

Best Buy Co  vs.  Nitori Holdings Co

Best Buy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Best Buy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Nitori Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nitori Holdings Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Nitori Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Best Buy and Nitori Holdings

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

The idea behind Best Buy Co and Nitori Holdings Co 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.