Correlation Between Floor Decor and Volkswagen

Can any of the company-specific risk be diversified away by investing in both Floor Decor and Volkswagen 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 Volkswagen 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 Volkswagen AG 110, you can compare the effects of market volatilities on Floor Decor and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Floor Decor and Volkswagen.

Diversification Opportunities for Floor Decor and Volkswagen

-0.56

Correlation Coefficient

Floor Decor  Volkswagen

Excellent diversification

The 3 months correlation between Floor and Volkswagen is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and Volkswagen AG 110 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 110 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG 110 has no effect on the direction of Floor Decor i.e., Floor Decor and Volkswagen go up and down completely randomly.

Pair Corralation between Floor Decor and Volkswagen

Considering the 90-day investment horizon Floor Decor Holdings is expected to generate 1.35 times more return on investment than Volkswagen. However, Floor Decor is 1.35 times more volatile than Volkswagen AG 110. It trades about 0.02 of its potential returns per unit of risk. Volkswagen AG 110 is currently generating about -0.04 per unit of risk. If you would invest  8,885  in Floor Decor Holdings on December 1, 2024 and sell it today you would earn a total of  778.00  from holding Floor Decor Holdings or generate 8.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Floor Decor Holdings  vs.  Volkswagen AG 110

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.

Volkswagen AG 110

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG 110 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Volkswagen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Floor Decor and Volkswagen

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

The idea behind Floor Decor Holdings and Volkswagen AG 110 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.