Correlation Between Dicks Sporting and Genuine Parts

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

By analyzing existing cross correlation between Dicks Sporting Goods and Genuine Parts Co, you can compare the effects of market volatilities on Dicks Sporting and Genuine Parts 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 Dicks Sporting with a short position of Genuine Parts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dicks Sporting and Genuine Parts.

Diversification Opportunities for Dicks Sporting and Genuine Parts

0.81

Correlation Coefficient

Dicks Sporting  Genuine Parts

Very poor diversification

The 3 months correlation between Dicks and Genuine is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dicks Sporting Goods and Genuine Parts Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts and Dicks Sporting 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 Dicks Sporting Goods are associated (or correlated) with Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Dicks Sporting i.e., Dicks Sporting and Genuine Parts go up and down completely randomly.

Pair Corralation between Dicks Sporting and Genuine Parts

Considering the 90-day investment horizon Dicks Sporting Goods is expected to generate 1.73 times more return on investment than Genuine Parts. However, Dicks Sporting is 1.73 times more volatile than Genuine Parts Co. It trades about 0.09 of its potential returns per unit of risk. Genuine Parts Co is currently generating about 0.03 per unit of risk. If you would invest  13,243  in Dicks Sporting Goods on January 24, 2024 and sell it today you would earn a total of  6,624  from holding Dicks Sporting Goods or generate 50.02% return on investment over 90 days.

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

Dicks Sporting Goods  vs.  Genuine Parts Co

Dicks Sporting Goods

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dicks Sporting Goods are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward-looking signals, Dicks Sporting unveiled solid returns over the last few months and may actually be approaching a breakup point.

Genuine Parts

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Genuine Parts exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dicks Sporting and Genuine Parts

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

The idea behind Dicks Sporting Goods and Genuine Parts 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.