Correlation Between Trinity Industries and Freightcar America

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

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

Diversification Opportunities for Trinity Industries and Freightcar America

0.94

Correlation Coefficient

Trinity Industries  Freightcar America

Almost no diversification

The 3 months correlation between Trinity and Freightcar is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Industries and Freightcar America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freightcar America 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 Freightcar America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freightcar America has no effect on the direction of Trinity Industries i.e., Trinity Industries and Freightcar America go up and down completely randomly.

Pair Corralation between Trinity Industries and Freightcar America

Considering the 90-day investment horizon Trinity Industries is expected to generate 0.37 times more return on investment than Freightcar America. However, Trinity Industries is 2.73 times less risky than Freightcar America. It trades about -0.16 of its potential returns per unit of risk. Freightcar America is currently generating about -0.12 per unit of risk. If you would invest  3,499  in Trinity Industries on December 30, 2024 and sell it today you would lose (654.00) from holding Trinity Industries or give up 18.69% of portfolio value over 90 days.

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

Trinity Industries  vs.  Freightcar America

Trinity Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trinity Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Freightcar America

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freightcar America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Trinity Industries and Freightcar America

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

The idea behind Trinity Industries and Freightcar America 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.