Correlation Between Big 5 and Conns

Can any of the company-specific risk be diversified away by investing in both Big 5 and Conns 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 Big 5 and Conns into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and Conns Inc, you can compare the effects of market volatilities on Big 5 and Conns 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 Big 5 with a short position of Conns. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Conns.

Diversification Opportunities for Big 5 and Conns

0.6

Correlation Coefficient

Big 5  Conns

Poor diversification

The 3 months correlation between Big and Conns is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Conns Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conns Inc and Big 5 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 Big 5 Sporting are associated (or correlated) with Conns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conns Inc has no effect on the direction of Big 5 i.e., Big 5 and Conns go up and down completely randomly.

Pair Corralation between Big 5 and Conns

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Conns. In addition to that, Big 5 is 1.35 times more volatile than Conns Inc. It trades about -0.03 of its total potential returns per unit of risk. Conns Inc is currently generating about 0.05 per unit of volatility. If you would invest  370.00  in Conns Inc on February 23, 2024 and sell it today you would earn a total of  9.00  from holding Conns Inc or generate 2.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Big 5 Sporting  vs.  Conns Inc

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big 5 Sporting 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 technical and fundamental indicators remain fairly stable which may send shares a bit higher in June 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Conns Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Conns Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Conns is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Big 5 and Conns

The main advantage of trading using opposite Big 5 and Conns positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Conns 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 Conns will offset losses from the drop in Conns' long position.

The idea behind Big 5 Sporting and Conns Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.