Correlation Between Floor Decor and Sodexo PK

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

Diversification Opportunities for Floor Decor and Sodexo PK

-0.36

Correlation Coefficient

Floor Decor  Sodexo PK

Very good diversification

The 3 months correlation between Floor and Sodexo is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Sodexo PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo PK 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 Sodexo PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo PK has no effect on the direction of Floor Decor i.e., Floor Decor and Sodexo PK go up and down completely randomly.

Pair Corralation between Floor Decor and Sodexo PK

Considering the 90-day investment horizon Floor Decor Holdings is expected to generate 2.51 times more return on investment than Sodexo PK. However, Floor Decor is 2.51 times more volatile than Sodexo PK. It trades about 0.0 of its potential returns per unit of risk. Sodexo PK is currently generating about -0.3 per unit of risk. If you would invest  10,949  in Floor Decor Holdings on September 5, 2024 and sell it today you would lose (128.00) from holding Floor Decor Holdings or give up 1.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Floor Decor Holdings  vs.  Sodexo PK

Floor Decor Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Floor Decor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sodexo PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sodexo PK 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Floor Decor and Sodexo PK

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

The idea behind Floor Decor Holdings and Sodexo PK 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.