Correlation Between Floor Decor and Tongxin International

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

Diversification Opportunities for Floor Decor and Tongxin International

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Correlation Coefficient

Floor Decor  Tongxin International

Pay attention - limited upside

The 3 months correlation between Floor and Tongxin is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Tongxin International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongxin International 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 Tongxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongxin International has no effect on the direction of Floor Decor i.e., Floor Decor and Tongxin International go up and down completely randomly.

Pair Corralation between Floor Decor and Tongxin International

Considering the 90-day investment horizon Floor Decor is expected to generate 32.06 times less return on investment than Tongxin International. But when comparing it to its historical volatility, Floor Decor Holdings is 18.85 times less risky than Tongxin International. It trades about 0.02 of its potential returns per unit of risk. Tongxin International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Tongxin International on October 11, 2024 and sell it today you would earn a total of  0.00  from holding Tongxin International or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Floor Decor Holdings  vs.  Tongxin International

Floor Decor Holdings

Risk-Adjusted Performance

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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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tongxin International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tongxin International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Tongxin International is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Floor Decor and Tongxin International

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

The idea behind Floor Decor Holdings and Tongxin International 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.