Correlation Between Parkland and Tandy Leather

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

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

Diversification Opportunities for Parkland and Tandy Leather

-0.36

Correlation Coefficient

Parkland  Tandy Leather

Very good diversification

The 3 months correlation between Parkland and Tandy is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Parkland and Tandy Leather Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandy Leather Factory and Parkland 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 Parkland are associated (or correlated) with Tandy Leather. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandy Leather Factory has no effect on the direction of Parkland i.e., Parkland and Tandy Leather go up and down completely randomly.

Pair Corralation between Parkland and Tandy Leather

Assuming the 90 days horizon Parkland is expected to under-perform the Tandy Leather. But the pink sheet apears to be less risky and, when comparing its historical volatility, Parkland is 1.52 times less risky than Tandy Leather. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Tandy Leather Factory is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  418.00  in Tandy Leather Factory on September 26, 2024 and sell it today you would earn a total of  55.00  from holding Tandy Leather Factory or generate 13.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Parkland  vs.  Tandy Leather Factory

Parkland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Parkland has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Tandy Leather Factory

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, Tandy Leather reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parkland and Tandy Leather

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

The idea behind Parkland and Tandy Leather Factory 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.