Correlation Between Five Below and BJs Wholesale

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Can any of the company-specific risk be diversified away by investing in both Five Below and BJs Wholesale 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 Five Below and BJs Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Five Below and BJs Wholesale Club, you can compare the effects of market volatilities on Five Below and BJs Wholesale 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 Five Below with a short position of BJs Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Below and BJs Wholesale.

Diversification Opportunities for Five Below and BJs Wholesale

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Five and BJs is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Five Below and BJs Wholesale Club in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Wholesale Club and Five Below 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 Five Below are associated (or correlated) with BJs Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Wholesale Club has no effect on the direction of Five Below i.e., Five Below and BJs Wholesale go up and down completely randomly.

Pair Corralation between Five Below and BJs Wholesale

Given the investment horizon of 90 days Five Below is expected to under-perform the BJs Wholesale. In addition to that, Five Below is 1.37 times more volatile than BJs Wholesale Club. It trades about -0.09 of its total potential returns per unit of risk. BJs Wholesale Club is currently generating about 0.06 per unit of volatility. If you would invest  7,354  in BJs Wholesale Club on December 30, 2023 and sell it today you would earn a total of  211.00  from holding BJs Wholesale Club or generate 2.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Five Below  vs.  BJs Wholesale Club

 Performance 
       Timeline  
Five Below 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Five Below has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
BJs Wholesale Club 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent forward-looking indicators, BJs Wholesale revealed solid returns over the last few months and may actually be approaching a breakup point.

Five Below and BJs Wholesale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Five Below and BJs Wholesale

The main advantage of trading using opposite Five Below and BJs Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Below position performs unexpectedly, BJs Wholesale 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 BJs Wholesale will offset losses from the drop in BJs Wholesale's long position.
The idea behind Five Below and BJs Wholesale Club 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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