Correlation Between Ralph Lauren and Lear

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

By analyzing existing cross correlation between Ralph Lauren Corp and Lear Corporation, you can compare the effects of market volatilities on Ralph Lauren and Lear 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 Ralph Lauren with a short position of Lear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ralph Lauren and Lear.

Diversification Opportunities for Ralph Lauren and Lear

0.21

Correlation Coefficient

Ralph Lauren  Lear

Modest diversification

The 3 months correlation between Ralph and Lear is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ralph Lauren Corp and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear and Ralph Lauren 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 Ralph Lauren Corp are associated (or correlated) with Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of Ralph Lauren i.e., Ralph Lauren and Lear go up and down completely randomly.

Pair Corralation between Ralph Lauren and Lear

Allowing for the 90-day total investment horizon Ralph Lauren is expected to generate 1.49 times less return on investment than Lear. In addition to that, Ralph Lauren is 1.42 times more volatile than Lear Corporation. It trades about 0.01 of its total potential returns per unit of risk. Lear Corporation is currently generating about 0.03 per unit of volatility. If you would invest  9,422  in Lear Corporation on December 26, 2024 and sell it today you would earn a total of  168.00  from holding Lear Corporation or generate 1.78% return on investment over 90 days.

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

Ralph Lauren Corp  vs.  Lear Corp.

Ralph Lauren Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ralph Lauren Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Ralph Lauren is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Lear

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lear Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Lear is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ralph Lauren and Lear

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

The idea behind Ralph Lauren Corp and Lear Corporation 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.