Correlation Between Best Buy and Dicks Sporting

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

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

Diversification Opportunities for Best Buy and Dicks Sporting

0.88

Correlation Coefficient

Best Buy  Dicks Sporting

Very poor diversification

The 3 months correlation between Best and Dicks is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co 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 Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and Dicks Sporting go up and down completely randomly.

Pair Corralation between Best Buy and Dicks Sporting

Considering the 90-day investment horizon Best Buy is expected to generate 53.35 times less return on investment than Dicks Sporting. But when comparing it to its historical volatility, Best Buy Co is 1.27 times less risky than Dicks Sporting. It trades about 0.0 of its potential returns per unit of risk. Dicks Sporting Goods is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,128  in Dicks Sporting Goods on January 17, 2024 and sell it today you would earn a total of  10,725  from holding Dicks Sporting Goods or generate 117.5% return on investment over 90 days.

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

Best Buy Co  vs.  Dicks Sporting Goods

Best Buy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Best Buy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Dicks Sporting Goods

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dicks Sporting Goods are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward-looking signals, Dicks Sporting unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Best Buy and Dicks Sporting

The main advantage of trading using opposite Best Buy and Dicks Sporting positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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 Best Buy Co 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.