Correlation Between Monro Muffler and Douglas Dynamics

Can any of the company-specific risk be diversified away by investing in both Monro Muffler and Douglas Dynamics 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 Monro Muffler and Douglas Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Monro Muffler Brake and Douglas Dynamics, you can compare the effects of market volatilities on Monro Muffler and Douglas Dynamics 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 Monro Muffler with a short position of Douglas Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monro Muffler and Douglas Dynamics.

Diversification Opportunities for Monro Muffler and Douglas Dynamics

-0.42

Correlation Coefficient

Monro Muffler  Douglas Dynamics

Very good diversification

The 3 months correlation between Monro and Douglas is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Monro Muffler Brake and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics and Monro Muffler 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 Monro Muffler Brake are associated (or correlated) with Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Monro Muffler i.e., Monro Muffler and Douglas Dynamics go up and down completely randomly.

Pair Corralation between Monro Muffler and Douglas Dynamics

Given the investment horizon of 90 days Monro Muffler Brake is expected to under-perform the Douglas Dynamics. In addition to that, Monro Muffler is 1.42 times more volatile than Douglas Dynamics. It trades about -0.25 of its total potential returns per unit of risk. Douglas Dynamics is currently generating about 0.04 per unit of volatility. If you would invest  2,312  in Douglas Dynamics on December 29, 2024 and sell it today you would earn a total of  77.00  from holding Douglas Dynamics or generate 3.33% return on investment over 90 days.

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

Monro Muffler Brake  vs.  Douglas Dynamics

Monro Muffler Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Douglas Dynamics

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Dynamics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Monro Muffler and Douglas Dynamics

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

The idea behind Monro Muffler Brake and Douglas Dynamics 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.