Correlation Between Nike and BRP

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

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

Diversification Opportunities for Nike and BRP

-0.5

Correlation Coefficient

Nike  BRP

Very good diversification

The 3 months correlation between Nike and BRP is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and BRP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRP Inc 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 BRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRP Inc has no effect on the direction of Nike i.e., Nike and BRP go up and down completely randomly.

Pair Corralation between Nike and BRP

Considering the 90-day investment horizon Nike Inc is expected to generate 0.64 times more return on investment than BRP. However, Nike Inc is 1.56 times less risky than BRP. It trades about -0.01 of its potential returns per unit of risk. BRP Inc is currently generating about -0.14 per unit of risk. If you would invest  9,256  in Nike Inc on February 1, 2024 and sell it today you would lose (30.00) from holding Nike Inc or give up 0.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Nike Inc  vs.  BRP Inc

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.

BRP Inc

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRP Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, BRP may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Nike and BRP

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

The idea behind Nike Inc and BRP 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.