Correlation Between Nike and Aspen Aerogels

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

By analyzing existing cross correlation between Nike Inc and Aspen Aerogels, you can compare the effects of market volatilities on Nike and Aspen Aerogels 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 Nike with a short position of Aspen Aerogels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Aspen Aerogels.

Diversification Opportunities for Nike and Aspen Aerogels

-0.29

Correlation Coefficient

Nike  Aspen Aerogels

Very good diversification

The 3 months correlation between Nike and Aspen is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Aspen Aerogels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Aerogels and Nike 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 Nike Inc are associated (or correlated) with Aspen Aerogels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Aerogels has no effect on the direction of Nike i.e., Nike and Aspen Aerogels go up and down completely randomly.

Pair Corralation between Nike and Aspen Aerogels

Considering the 90-day investment horizon Nike Inc is expected to generate 0.37 times more return on investment than Aspen Aerogels. However, Nike Inc is 2.69 times less risky than Aspen Aerogels. It trades about -0.01 of its potential returns per unit of risk. Aspen Aerogels is currently generating about -0.14 per unit of risk. If you would invest  9,256  in Nike Inc on February 1, 2024 and sell it today you would lose (30.00) from holding Nike Inc or give up 0.32% of portfolio value over 90 days.

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

Nike Inc  vs.  Aspen Aerogels

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Aspen Aerogels

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Aerogels are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Aspen Aerogels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nike and Aspen Aerogels

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

The idea behind Nike Inc and Aspen Aerogels 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..