Correlation Between LB Foster and Greenbrier Companies

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

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

Diversification Opportunities for LB Foster and Greenbrier Companies

0.62

Correlation Coefficient

LB Foster  Greenbrier Companies

Poor diversification

The 3 months correlation between FSTR and Greenbrier is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Greenbrier Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greenbrier Companies and LB Foster 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 LB Foster are associated (or correlated) with Greenbrier Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greenbrier Companies has no effect on the direction of LB Foster i.e., LB Foster and Greenbrier Companies go up and down completely randomly.

Pair Corralation between LB Foster and Greenbrier Companies

Given the investment horizon of 90 days LB Foster is expected to generate 2.0 times less return on investment than Greenbrier Companies. In addition to that, LB Foster is 1.09 times more volatile than Greenbrier Companies. It trades about 0.1 of its total potential returns per unit of risk. Greenbrier Companies is currently generating about 0.22 per unit of volatility. If you would invest  3,236  in Greenbrier Companies on January 25, 2024 and sell it today you would earn a total of  2,113  from holding Greenbrier Companies or generate 65.3% return on investment over 90 days.

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

LB Foster  vs.  Greenbrier Companies

LB Foster

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, LB Foster is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Greenbrier Companies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Greenbrier Companies are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Greenbrier Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LB Foster and Greenbrier Companies

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

The idea behind LB Foster and Greenbrier Companies 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.