Correlation Between Floor Decor and GrowGeneration Corp

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

By analyzing existing cross correlation between Floor Decor Holdings and GrowGeneration Corp, you can compare the effects of market volatilities on Floor Decor and GrowGeneration Corp 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 Floor Decor with a short position of GrowGeneration Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floor Decor and GrowGeneration Corp.

Diversification Opportunities for Floor Decor and GrowGeneration Corp

0.28

Correlation Coefficient

Floor Decor  GrowGeneration Corp

Modest diversification

The 3 months correlation between Floor and GrowGeneration is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and GrowGeneration Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrowGeneration Corp and Floor Decor 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 Floor Decor Holdings are associated (or correlated) with GrowGeneration Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrowGeneration Corp has no effect on the direction of Floor Decor i.e., Floor Decor and GrowGeneration Corp go up and down completely randomly.

Pair Corralation between Floor Decor and GrowGeneration Corp

Considering the 90-day investment horizon Floor Decor Holdings is expected to under-perform the GrowGeneration Corp. But the stock apears to be less risky and, when comparing its historical volatility, Floor Decor Holdings is 1.52 times less risky than GrowGeneration Corp. The stock trades about -0.07 of its potential returns per unit of risk. The GrowGeneration Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  205.00  in GrowGeneration Corp on October 7, 2024 and sell it today you would lose (23.00) from holding GrowGeneration Corp or give up 11.22% of portfolio value over 90 days.

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

Floor Decor Holdings  vs.  GrowGeneration Corp

Floor Decor Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

GrowGeneration Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GrowGeneration Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Floor Decor and GrowGeneration Corp

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

The idea behind Floor Decor Holdings and GrowGeneration Corp 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.