Correlation Between Trinity Industries and Douglas Dynamics

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

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

Diversification Opportunities for Trinity Industries and Douglas Dynamics

-0.42

Correlation Coefficient

Trinity Industries  Douglas Dynamics

Very good diversification

The 3 months correlation between Trinity and Douglas is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Industries and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics and Trinity Industries 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 Trinity Industries are associated (or correlated) with Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Trinity Industries i.e., Trinity Industries and Douglas Dynamics go up and down completely randomly.

Pair Corralation between Trinity Industries and Douglas Dynamics

Considering the 90-day investment horizon Trinity Industries is expected to generate 0.89 times more return on investment than Douglas Dynamics. However, Trinity Industries is 1.13 times less risky than Douglas Dynamics. It trades about 0.08 of its potential returns per unit of risk. Douglas Dynamics is currently generating about 0.03 per unit of risk. If you would invest  3,070  in Trinity Industries on August 30, 2024 and sell it today you would earn a total of  675.00  from holding Trinity Industries or generate 21.99% return on investment over 90 days.

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

Trinity Industries  vs.  Douglas Dynamics

Trinity Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Trinity Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Trinity Industries and Douglas Dynamics

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

The idea behind Trinity Industries and Douglas Dynamics 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.