Correlation Between Nike and AMCON Distributing

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

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

Diversification Opportunities for Nike and AMCON Distributing

0.7

Correlation Coefficient

Nike  AMCON Distributing

Poor diversification

The 3 months correlation between Nike and AMCON is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and AMCON Distributing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMCON Distributing 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 AMCON Distributing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMCON Distributing has no effect on the direction of Nike i.e., Nike and AMCON Distributing go up and down completely randomly.

Pair Corralation between Nike and AMCON Distributing

Considering the 90-day investment horizon Nike Inc is expected to generate 0.52 times more return on investment than AMCON Distributing. However, Nike Inc is 1.92 times less risky than AMCON Distributing. It trades about -0.13 of its potential returns per unit of risk. AMCON Distributing is currently generating about -0.18 per unit of risk. If you would invest  10,398  in Nike Inc on February 28, 2024 and sell it today you would lose (1,223) from holding Nike Inc or give up 11.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Nike Inc  vs.  AMCON Distributing

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 unfluctuating 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.

AMCON Distributing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AMCON Distributing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Nike and AMCON Distributing

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

The idea behind Nike Inc and AMCON Distributing 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.