Correlation Between LL Flooring and Floor Decor

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

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

Diversification Opportunities for LL Flooring and Floor Decor

-0.52

Correlation Coefficient

LL Flooring  Floor Decor

Excellent diversification

The 3 months correlation between LL Flooring and Floor is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding LL Flooring Holdings and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings and LL Flooring 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 LL Flooring Holdings are associated (or correlated) with Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of LL Flooring i.e., LL Flooring and Floor Decor go up and down completely randomly.

Pair Corralation between LL Flooring and Floor Decor

Allowing for the 90-day total investment horizon LL Flooring Holdings is expected to under-perform the Floor Decor. In addition to that, LL Flooring is 1.35 times more volatile than Floor Decor Holdings. It trades about -0.09 of its total potential returns per unit of risk. Floor Decor Holdings is currently generating about 0.03 per unit of volatility. If you would invest  8,711  in Floor Decor Holdings on January 24, 2024 and sell it today you would earn a total of  2,286  from holding Floor Decor Holdings or generate 26.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

LL Flooring Holdings  vs.  Floor Decor Holdings

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.

Floor Decor Holdings

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with LL Flooring and Floor Decor

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

The idea behind LL Flooring Holdings and Floor Decor 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.