Correlation Between Brown Forman and Nike

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

Diversification Opportunities for Brown Forman and Nike

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Brown and Nike is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman Inc and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc and Brown Forman 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 Brown Forman are associated (or correlated) with Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Brown Forman i.e., Brown Forman and Nike go up and down completely randomly.

Pair Corralation between Brown Forman and Nike

Given the investment horizon of 90 days Brown Forman is expected to generate 1.58 times less return on investment than Nike. But when comparing it to its historical volatility, Brown Forman is 2.2 times less risky than Nike. It trades about 0.26 of its potential returns per unit of risk. Nike Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,511  in Nike Inc on May 11, 2022 and sell it today you would earn a total of  889.00  from holding Nike Inc or generate 8.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Brown Forman Inc  vs.  Nike Inc

 Performance (%) 
       Timeline  
Brown Forman 
Brown Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Brown Forman are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Brown Forman sustained solid returns over the last few months and may actually be approaching a breakup point.

Brown Price Channel

Nike Inc 
Nike Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish forward-looking signals, Nike may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Nike Price Channel

Brown Forman and Nike Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Brown Forman and Nike

The main advantage of trading using opposite Brown Forman and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Forman position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.
The idea behind Brown Forman and Nike 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.
Check out your portfolio center. 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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