Correlation Between LCI Industries and Dorman Products

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

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

Diversification Opportunities for LCI Industries and Dorman Products

0.16

Correlation Coefficient

LCI Industries  Dorman Products

Average diversification

The 3 months correlation between LCI and Dorman is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding LCI Industries and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products and LCI Industries 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 LCI Industries are associated (or correlated) with Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of LCI Industries i.e., LCI Industries and Dorman Products go up and down completely randomly.

Pair Corralation between LCI Industries and Dorman Products

Given the investment horizon of 90 days LCI Industries is expected to generate 3.36 times less return on investment than Dorman Products. In addition to that, LCI Industries is 1.02 times more volatile than Dorman Products. It trades about 0.06 of its total potential returns per unit of risk. Dorman Products is currently generating about 0.2 per unit of volatility. If you would invest  10,950  in Dorman Products on September 2, 2024 and sell it today you would earn a total of  3,048  from holding Dorman Products or generate 27.84% return on investment over 90 days.

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

LCI Industries  vs.  Dorman Products

LCI Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LCI Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, LCI Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dorman Products

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LCI Industries and Dorman Products

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

The idea behind LCI Industries and Dorman Products 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.