Correlation Between TFI International and LB Foster

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

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

Diversification Opportunities for TFI International and LB Foster

0.81

Correlation Coefficient

TFI International  LB Foster

Very poor diversification

The 3 months correlation between TFI and FSTR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding TFI International and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and TFI International 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 TFI International 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 TFI International i.e., TFI International and LB Foster go up and down completely randomly.

Pair Corralation between TFI International and LB Foster

Given the investment horizon of 90 days TFI International is expected to generate 3.46 times less return on investment than LB Foster. But when comparing it to its historical volatility, TFI International is 1.61 times less risky than LB Foster. It trades about 0.13 of its potential returns per unit of risk. LB Foster is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,972  in LB Foster on September 19, 2024 and sell it today you would earn a total of  854.00  from holding LB Foster or generate 43.31% return on investment over 90 days.

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

TFI International  vs.  LB Foster

TFI International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TFI International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, TFI International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 weak basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TFI International and LB Foster

The main advantage of trading using opposite TFI International and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TFI International 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 TFI International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.