Can any of the company-specific risk be diversified away by investing in both Genuine Parts and Big Lots 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 Genuine Parts and Big Lots into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Genuine Parts Co and Big Lots, you can compare the effects of market volatilities on Genuine Parts and Big Lots 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 Genuine Parts with a short position of Big Lots. Check out your portfolio center. Please also check ongoing floating volatility patterns of Genuine Parts and Big Lots.
Diversification Opportunities for Genuine Parts and Big Lots
The 3 months correlation between Genuine and Big is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Genuine Parts Co and Big Lots in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Lots and Genuine Parts 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 Genuine Parts Co are associated (or correlated) with Big Lots. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Lots has no effect on the direction of Genuine Parts i.e., Genuine Parts and Big Lots go up and down completely randomly.
Pair Corralation between Genuine Parts and Big Lots
Considering the 90-day investment horizon Genuine Parts Co is expected to generate 0.23 times more return on investment than Big Lots. However, Genuine Parts Co is 4.39 times less risky than Big Lots. It trades about 0.05 of its potential returns per unit of risk. Big Lots is currently generating about -0.05 per unit of risk. If you would invest 13,340 in Genuine Parts Co on March 6, 2024 and sell it today you would earn a total of 1,137 from holding Genuine Parts Co or generate 8.52% return on investment over 90 days.
Over the last 90 days Genuine Parts Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Genuine Parts is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Over the last 90 days Big Lots has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.