Correlation Between Big 5 and Murphy USA

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Can any of the company-specific risk be diversified away by investing in both Big 5 and Murphy USA 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 Murphy USA 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 Murphy USA, you can compare the effects of market volatilities on Big 5 and Murphy USA 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 Murphy USA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Murphy USA.

Diversification Opportunities for Big 5 and Murphy USA

  Correlation Coefficient

Modest diversification

The 3 months correlation between Big 5 and Murphy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Murphy USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murphy USA 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 Murphy USA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murphy USA has no effect on the direction of Big 5 i.e., Big 5 and Murphy USA go up and down completely randomly.

Pair Corralation between Big 5 and Murphy USA

Given the investment horizon of 90 days Big 5 Sporting is expected to generate 2.41 times more return on investment than Murphy USA. However, Big 5 is 2.41 times more volatile than Murphy USA. It trades about 0.13 of its potential returns per unit of risk. Murphy USA is currently generating about 0.15 per unit of risk. If you would invest  1,170  in Big 5 Sporting on May 11, 2022 and sell it today you would earn a total of  151.00  from holding Big 5 Sporting or generate 12.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
ValuesDaily Returns

Big 5 Sporting  vs.  Murphy USA

 Performance (%) 
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 fairly stable technical and fundamental indicators, Big 5 is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Big 5 Price Channel

Murphy USA 
Murphy Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Murphy USA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Murphy USA sustained solid returns over the last few months and may actually be approaching a breakup point.

Murphy Price Channel

Big 5 and Murphy USA Volatility Contrast

   Predicted Return Density   

Pair Trading with Big 5 and Murphy USA

The main advantage of trading using opposite Big 5 and Murphy USA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Murphy USA 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 Murphy USA will offset losses from the drop in Murphy USA's long position.
The idea behind Big 5 Sporting and Murphy USA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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