Correlation Between LCI Industries and Brunswick

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

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

Diversification Opportunities for LCI Industries and Brunswick

0.42

Correlation Coefficient

LCI Industries  Brunswick

Very weak diversification

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

Pair Corralation between LCI Industries and Brunswick

Given the investment horizon of 90 days LCI Industries is expected to generate 1.07 times more return on investment than Brunswick. However, LCI Industries is 1.07 times more volatile than Brunswick. It trades about -0.28 of its potential returns per unit of risk. Brunswick is currently generating about -0.34 per unit of risk. If you would invest  11,995  in LCI Industries on January 31, 2024 and sell it today you would lose (1,597) from holding LCI Industries or give up 13.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

LCI Industries  vs.  Brunswick

LCI Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LCI Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, LCI Industries is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Brunswick

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brunswick are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Brunswick is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LCI Industries and Brunswick

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

The idea behind LCI Industries and Brunswick 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 Global Correlations module to find global opportunities by holding instruments from different markets.