Correlation Between Floor Decor and Sharp Corp

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

Diversification Opportunities for Floor Decor and Sharp Corp

0.19

Correlation Coefficient

Floor Decor  Sharp Corp

Average diversification

The 3 months correlation between Floor and Sharp is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Sharp Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sharp Corp ADR 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 Sharp Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sharp Corp ADR has no effect on the direction of Floor Decor i.e., Floor Decor and Sharp Corp go up and down completely randomly.

Pair Corralation between Floor Decor and Sharp Corp

Considering the 90-day investment horizon Floor Decor is expected to generate 4.1 times less return on investment than Sharp Corp. But when comparing it to its historical volatility, Floor Decor Holdings is 1.58 times less risky than Sharp Corp. It trades about 0.01 of its potential returns per unit of risk. Sharp Corp ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  135.00  in Sharp Corp ADR on September 12, 2024 and sell it today you would earn a total of  16.00  from holding Sharp Corp ADR or generate 11.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.72%
Values	Daily Returns

Floor Decor Holdings  vs.  Sharp Corp ADR

Floor Decor Holdings

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sharp Corp ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sharp Corp ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Sharp Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Floor Decor and Sharp Corp

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

The idea behind Floor Decor Holdings and Sharp Corp ADR 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.