Correlation Between Installed Building and Cavco Industries

Can any of the company-specific risk be diversified away by investing in both Installed Building and Cavco Industries 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 Installed Building and Cavco Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Installed Building Products and Cavco Industries, you can compare the effects of market volatilities on Installed Building and Cavco Industries 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 Installed Building with a short position of Cavco Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Installed Building and Cavco Industries.

Diversification Opportunities for Installed Building and Cavco Industries

-0.06

Correlation Coefficient

Installed Building  Cavco Industries

Good diversification

The 3 months correlation between Installed and Cavco is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Installed Building Products and Cavco Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavco Industries and Installed Building 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 Installed Building Products are associated (or correlated) with Cavco Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavco Industries has no effect on the direction of Installed Building i.e., Installed Building and Cavco Industries go up and down completely randomly.

Pair Corralation between Installed Building and Cavco Industries

Considering the 90-day investment horizon Installed Building Products is expected to generate 1.15 times more return on investment than Cavco Industries. However, Installed Building is 1.15 times more volatile than Cavco Industries. It trades about 0.06 of its potential returns per unit of risk. Cavco Industries is currently generating about 0.06 per unit of risk. If you would invest  10,023  in Installed Building Products on October 9, 2024 and sell it today you would earn a total of  7,498  from holding Installed Building Products or generate 74.81% return on investment over 90 days.

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

Installed Building Products  vs.  Cavco Industries

Installed Building

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Installed Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Cavco Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cavco Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Cavco Industries may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Installed Building and Cavco Industries

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

The idea behind Installed Building Products and Cavco Industries 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.