Correlation Between Floor Decor and Starco Brands

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

Diversification Opportunities for Floor Decor and Starco Brands

0.37

Correlation Coefficient

Floor Decor  Starco Brands

Weak diversification

The 3 months correlation between Floor and Starco is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Starco Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starco Brands 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 Starco Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starco Brands has no effect on the direction of Floor Decor i.e., Floor Decor and Starco Brands go up and down completely randomly.

Pair Corralation between Floor Decor and Starco Brands

Considering the 90-day investment horizon Floor Decor Holdings is expected to generate 0.2 times more return on investment than Starco Brands. However, Floor Decor Holdings is 4.95 times less risky than Starco Brands. It trades about -0.11 of its potential returns per unit of risk. Starco Brands is currently generating about -0.03 per unit of risk. If you would invest  10,107  in Floor Decor Holdings on December 25, 2024 and sell it today you would lose (1,540) from holding Floor Decor Holdings or give up 15.24% 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.  Starco Brands

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.

Starco Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Starco Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Floor Decor and Starco Brands

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

The idea behind Floor Decor Holdings and Starco Brands 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.