Correlation Between Big 5 and Genuine Parts

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Can any of the company-specific risk be diversified away by investing in both Big 5 and Genuine Parts 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 Big 5 and Genuine Parts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Genuine Parts, you can compare the effects of market volatilities on Big 5 and Genuine Parts 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 Big 5 with a short position of Genuine Parts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Genuine Parts.

Diversification Opportunities for Big 5 and Genuine Parts

-0.44
  Correlation Coefficient

Very good diversification

The 3 months correlation between Big 5 and Genuine is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Genuine Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts and Big 5 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 Big 5 Sporting are associated (or correlated) with Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Big 5 i.e., Big 5 and Genuine Parts go up and down completely randomly.

Pair Corralation between Big 5 and Genuine Parts

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Genuine Parts. In addition to that, Big 5 is 1.93 times more volatile than Genuine Parts. It trades about -0.17 of its total potential returns per unit of risk. Genuine Parts is currently generating about -0.04 per unit of volatility. If you would invest  13,583  in Genuine Parts on April 1, 2022 and sell it today you would lose (232.00)  from holding Genuine Parts or give up 1.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Big 5 Sporting  vs.  Genuine Parts

 Performance (%) 
      Timeline 
Big 5 Sporting 
Big 5 Performance
0 of 100
Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in July 2022. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.088
Payout Ratio
0.44
Forward Annual Dividend Rate
1.0
Dividend Date
2022-06-15
Ex Dividend Date
2022-05-31

Big 5 Price Channel

Genuine Parts 
Genuine Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Genuine Parts may actually be approaching a critical reversion point that can send shares even higher in July 2022.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0264
Payout Ratio
0.47
Last Split Factor
3:2
Forward Annual Dividend Rate
3.58
Dividend Date
2022-07-01
Ex Dividend Date
2022-06-02
Last Split Date
1997-04-15

Genuine Price Channel

Big 5 and Genuine Parts Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Big 5 and Genuine Parts

The main advantage of trading using opposite Big 5 and Genuine Parts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Genuine Parts 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 Genuine Parts will offset losses from the drop in Genuine Parts' long position.
The idea behind Big 5 Sporting and Genuine Parts 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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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