Correlation Between Gentherm and Dorman Products

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

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

Diversification Opportunities for Gentherm and Dorman Products

-0.28

Correlation Coefficient

Gentherm  Dorman Products

Very good diversification

The 3 months correlation between Gentherm and Dorman is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Gentherm and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products and Gentherm 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 Gentherm are associated (or correlated) with Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of Gentherm i.e., Gentherm and Dorman Products go up and down completely randomly.

Pair Corralation between Gentherm and Dorman Products

Given the investment horizon of 90 days Gentherm is expected to under-perform the Dorman Products. But the stock apears to be less risky and, when comparing its historical volatility, Gentherm is 1.09 times less risky than Dorman Products. The stock trades about -0.14 of its potential returns per unit of risk. The Dorman Products is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  11,342  in Dorman Products on August 30, 2024 and sell it today you would earn a total of  2,638  from holding Dorman Products or generate 23.26% return on investment over 90 days.

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

Gentherm  vs.  Dorman Products

Gentherm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gentherm has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Dorman Products

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gentherm and Dorman Products

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

The idea behind Gentherm and Dorman Products 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.