Correlation Between Academy Sports and Emerson Radio

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

By analyzing existing cross correlation between Academy Sports Outdoors and Emerson Radio, you can compare the effects of market volatilities on Academy Sports and Emerson Radio 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 Academy Sports with a short position of Emerson Radio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Academy Sports and Emerson Radio.

Diversification Opportunities for Academy Sports and Emerson Radio

0.12

Correlation Coefficient

Academy Sports  Emerson Radio

Average diversification

The 3 months correlation between Academy and Emerson is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Academy Sports Outdoors and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio and Academy Sports 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 Academy Sports Outdoors are associated (or correlated) with Emerson Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Radio has no effect on the direction of Academy Sports i.e., Academy Sports and Emerson Radio go up and down completely randomly.

Pair Corralation between Academy Sports and Emerson Radio

Considering the 90-day investment horizon Academy Sports Outdoors is expected to under-perform the Emerson Radio. But the stock apears to be less risky and, when comparing its historical volatility, Academy Sports Outdoors is 1.75 times less risky than Emerson Radio. The stock trades about -0.06 of its potential returns per unit of risk. The Emerson Radio is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  56.00  in Emerson Radio on August 23, 2024 and sell it today you would lose (11.00) from holding Emerson Radio or give up 19.64% of portfolio value over 90 days.

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

Academy Sports Outdoors  vs.  Emerson Radio

Academy Sports Outdoors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Emerson Radio

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Radio are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Emerson Radio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Academy Sports and Emerson Radio

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

The idea behind Academy Sports Outdoors and Emerson Radio 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.