Correlation Between Lowes Companies and Floor Decor

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

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

Diversification Opportunities for Lowes Companies and Floor Decor

0.94

Correlation Coefficient

Lowes Companies  Floor Decor

Almost no diversification

The 3 months correlation between Lowes and Floor is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies 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 Lowes Companies 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 Lowes Companies 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 Lowes Companies i.e., Lowes Companies and Floor Decor go up and down completely randomly.

Pair Corralation between Lowes Companies and Floor Decor

Considering the 90-day investment horizon Lowes Companies is expected to generate 1.08 times less return on investment than Floor Decor. But when comparing it to its historical volatility, Lowes Companies is 1.7 times less risky than Floor Decor. It trades about 0.05 of its potential returns per unit of risk. Floor Decor Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,966  in Floor Decor Holdings on January 25, 2024 and sell it today you would earn a total of  1,031  from holding Floor Decor Holdings or generate 10.35% return on investment over 90 days.

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

Lowes Companies  vs.  Floor Decor Holdings

Lowes Companies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Lowes Companies may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Floor Decor Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 1 (%) 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 Lowes Companies and Floor Decor

The main advantage of trading using opposite Lowes Companies and Floor Decor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies 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 Lowes Companies 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.