Correlation Between Nike and Brown Forman

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

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

Diversification Opportunities for Nike and Brown Forman

0.83

Correlation Coefficient

Nike  Brown Forman

Very poor diversification

The 3 months correlation between Nike and Brown is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman and Nike 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 Nike Inc are associated (or correlated) with Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Nike i.e., Nike and Brown Forman go up and down completely randomly.

Pair Corralation between Nike and Brown Forman

Considering the 90-day investment horizon Nike Inc is expected to generate 1.39 times more return on investment than Brown Forman. However, Nike is 1.39 times more volatile than Brown Forman. It trades about 0.0 of its potential returns per unit of risk. Brown Forman is currently generating about -0.03 per unit of risk. If you would invest  10,669  in Nike Inc on February 7, 2024 and sell it today you would lose (1,394) from holding Nike Inc or give up 13.07% of portfolio value over 90 days.

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

Nike Inc  vs.  Brown Forman

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nike and Brown Forman

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

The idea behind Nike Inc and Brown Forman 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.