Correlation Between Dorman Products and PHINIA

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

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

Diversification Opportunities for Dorman Products and PHINIA

0.87

Correlation Coefficient

Dorman Products  PHINIA

Very poor diversification

The 3 months correlation between Dorman and PHINIA is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and PHINIA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHINIA Inc and Dorman Products 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 Dorman Products are associated (or correlated) with PHINIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHINIA Inc has no effect on the direction of Dorman Products i.e., Dorman Products and PHINIA go up and down completely randomly.

Pair Corralation between Dorman Products and PHINIA

Given the investment horizon of 90 days Dorman Products is expected to generate 1.36 times less return on investment than PHINIA. But when comparing it to its historical volatility, Dorman Products is 1.08 times less risky than PHINIA. It trades about 0.09 of its potential returns per unit of risk. PHINIA Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,907  in PHINIA Inc on October 23, 2024 and sell it today you would earn a total of  2,234  from holding PHINIA Inc or generate 76.85% return on investment over 90 days.

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

Dorman Products  vs.  PHINIA Inc

Dorman Products

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

PHINIA Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PHINIA Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, PHINIA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dorman Products and PHINIA

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

The idea behind Dorman Products and PHINIA 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.