Correlation Between Floor Decor and Landsea Homes

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

Diversification Opportunities for Floor Decor and Landsea Homes

0.67

Correlation Coefficient

Floor Decor  Landsea Homes

Poor diversification

The 3 months correlation between Floor and Landsea is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Landsea Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Landsea Homes 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 Landsea Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Landsea Homes has no effect on the direction of Floor Decor i.e., Floor Decor and Landsea Homes go up and down completely randomly.

Pair Corralation between Floor Decor and Landsea Homes

Considering the 90-day investment horizon Floor Decor Holdings is expected to under-perform the Landsea Homes. But the stock apears to be less risky and, when comparing its historical volatility, Floor Decor Holdings is 5.89 times less risky than Landsea Homes. The stock trades about -0.12 of its potential returns per unit of risk. The Landsea Homes is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Landsea Homes on December 27, 2024 and sell it today you would lose (4.00) from holding Landsea Homes or give up 36.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Floor Decor Holdings  vs.  Landsea Homes

Floor Decor Holdings

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Landsea Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days Landsea Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Landsea Homes may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Floor Decor and Landsea Homes

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

The idea behind Floor Decor Holdings and Landsea Homes 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..