Correlation Between Floor Decor and LL Flooring

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

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

Diversification Opportunities for Floor Decor and LL Flooring

-0.71

Correlation Coefficient

Floor Decor  LL Flooring

Pay attention - limited upside

The 3 months correlation between Floor and LL Flooring is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and LL Flooring Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LL Flooring Holdings and Floor Decor 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 Floor Decor Holdings are associated (or correlated) with LL Flooring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LL Flooring Holdings has no effect on the direction of Floor Decor i.e., Floor Decor and LL Flooring go up and down completely randomly.

Pair Corralation between Floor Decor and LL Flooring

Considering the 90-day investment horizon Floor Decor Holdings is expected to under-perform the LL Flooring. In addition to that, Floor Decor is 1.25 times more volatile than LL Flooring Holdings. It trades about -0.1 of its total potential returns per unit of risk. LL Flooring Holdings is currently generating about -0.01 per unit of volatility. If you would invest  170.00  in LL Flooring Holdings on January 17, 2024 and sell it today you would lose (2.00) from holding LL Flooring Holdings or give up 1.18% of portfolio value over 90 days.

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

Floor Decor Holdings  vs.  LL Flooring Holdings

Floor Decor Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Floor Decor may actually be approaching a critical reversion point that can send shares even higher in May 2024.

LL Flooring Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LL Flooring Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Floor Decor and LL Flooring

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

The idea behind Floor Decor Holdings and LL Flooring Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.