Correlation Between PACCAR and Thor Industries

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

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

Diversification Opportunities for PACCAR and Thor Industries

-0.31

Correlation Coefficient

PACCAR  Thor Industries

Very good diversification

The 3 months correlation between PACCAR and Thor is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Thor Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thor Industries and PACCAR 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 PACCAR Inc are associated (or correlated) with Thor Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thor Industries has no effect on the direction of PACCAR i.e., PACCAR and Thor Industries go up and down completely randomly.

Pair Corralation between PACCAR and Thor Industries

Given the investment horizon of 90 days PACCAR Inc is expected to under-perform the Thor Industries. But the stock apears to be less risky and, when comparing its historical volatility, PACCAR Inc is 2.03 times less risky than Thor Industries. The stock trades about -0.41 of its potential returns per unit of risk. The Thor Industries is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  10,936  in Thor Industries on January 24, 2024 and sell it today you would lose (806.00) from holding Thor Industries or give up 7.37% of portfolio value over 90 days.

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

PACCAR Inc  vs.  Thor Industries

PACCAR Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Thor Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thor Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with PACCAR and Thor Industries

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

The idea behind PACCAR Inc and Thor Industries 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.