Correlation Between Tandy Leather and Genuine Parts

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

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

Diversification Opportunities for Tandy Leather and Genuine Parts

-0.24

Correlation Coefficient

Tandy Leather  Genuine Parts

Very good diversification

The 3 months correlation between Tandy and Genuine is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Tandy Leather Factory and Genuine Parts Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts and Tandy Leather 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 Tandy Leather Factory are associated (or correlated) with Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Tandy Leather i.e., Tandy Leather and Genuine Parts go up and down completely randomly.

Pair Corralation between Tandy Leather and Genuine Parts

Considering the 90-day investment horizon Tandy Leather Factory is expected to generate 3.25 times more return on investment than Genuine Parts. However, Tandy Leather is 3.25 times more volatile than Genuine Parts Co. It trades about 0.07 of its potential returns per unit of risk. Genuine Parts Co is currently generating about -0.04 per unit of risk. If you would invest  294.00  in Tandy Leather Factory on December 1, 2024 and sell it today you would earn a total of  36.00  from holding Tandy Leather Factory or generate 12.24% return on investment over 90 days.

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

Tandy Leather Factory  vs.  Genuine Parts Co

Tandy Leather Factory

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Tandy Leather reported solid returns over the last few months and may actually be approaching a breakup point.

Genuine Parts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Genuine Parts Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Genuine Parts is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tandy Leather and Genuine Parts

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

The idea behind Tandy Leather Factory and Genuine Parts Co 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.