Correlation Between Sea and LB Foster

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

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

Diversification Opportunities for Sea and LB Foster

0.86

Correlation Coefficient

Sea  LB Foster

Very poor diversification

The 3 months correlation between Sea and FSTR is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Sea and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and Sea 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 Sea are associated (or correlated) with LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Sea i.e., Sea and LB Foster go up and down completely randomly.

Pair Corralation between Sea and LB Foster

Allowing for the 90-day total investment horizon Sea is expected to generate 0.81 times more return on investment than LB Foster. However, Sea is 1.24 times less risky than LB Foster. It trades about 0.26 of its potential returns per unit of risk. LB Foster is currently generating about 0.2 per unit of risk. If you would invest  7,988  in Sea on September 15, 2024 and sell it today you would earn a total of  3,659  from holding Sea or generate 45.81% return on investment over 90 days.

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

Sea  vs.  LB Foster

Sea

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

LB Foster

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sea and LB Foster

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

The idea behind Sea and LB Foster 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.