Correlation Between Textron and FibraHotel

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

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

Diversification Opportunities for Textron and FibraHotel

-0.29

Correlation Coefficient

Textron  FibraHotel

Very good diversification

The 3 months correlation between Textron and FibraHotel is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Textron and FibraHotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FibraHotel and Textron 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 Textron are associated (or correlated) with FibraHotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FibraHotel has no effect on the direction of Textron i.e., Textron and FibraHotel go up and down completely randomly.

Pair Corralation between Textron and FibraHotel

Assuming the 90 days trading horizon Textron is expected to under-perform the FibraHotel. But the stock apears to be less risky and, when comparing its historical volatility, Textron is 2.54 times less risky than FibraHotel. The stock trades about -0.09 of its potential returns per unit of risk. The FibraHotel is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  904.00  in FibraHotel on November 19, 2024 and sell it today you would earn a total of  82.00  from holding FibraHotel or generate 9.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Textron  vs.  FibraHotel

Textron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

FibraHotel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FibraHotel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, FibraHotel may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Textron and FibraHotel

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

The idea behind Textron and FibraHotel 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.