Correlation Between Build A and Dicks Sporting

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

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

Diversification Opportunities for Build A and Dicks Sporting

0.96

Correlation Coefficient

Build A  Dicks Sporting

Almost no diversification

The 3 months correlation between Build and Dicks is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Build A Bear Workshop and Dicks Sporting Goods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dicks Sporting Goods and Build A 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 Build A Bear Workshop are associated (or correlated) with Dicks Sporting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dicks Sporting Goods has no effect on the direction of Build A i.e., Build A and Dicks Sporting go up and down completely randomly.

Pair Corralation between Build A and Dicks Sporting

Considering the 90-day investment horizon Build A is expected to generate 1.65 times less return on investment than Dicks Sporting. But when comparing it to its historical volatility, Build A Bear Workshop is 1.14 times less risky than Dicks Sporting. It trades about 0.07 of its potential returns per unit of risk. Dicks Sporting Goods is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  12,035  in Dicks Sporting Goods on January 19, 2024 and sell it today you would earn a total of  7,487  from holding Dicks Sporting Goods or generate 62.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.56%
Values	Daily Returns

Build A Bear Workshop  vs.  Dicks Sporting Goods

Build A Bear

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Build A Bear Workshop are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Build A showed solid returns over the last few months and may actually be approaching a breakup point.

Dicks Sporting Goods

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dicks Sporting Goods are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward-looking signals, Dicks Sporting unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Build A and Dicks Sporting

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

The idea behind Build A Bear Workshop and Dicks Sporting Goods 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.