Correlation Between Motorcar Parts and Douglas Dynamics

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

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

Diversification Opportunities for Motorcar Parts and Douglas Dynamics

0.87

Correlation Coefficient

Motorcar Parts  Douglas Dynamics

Very poor diversification

The 3 months correlation between Motorcar and Douglas is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Motorcar Parts of and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics and Motorcar Parts 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 Motorcar Parts of are associated (or correlated) with Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Motorcar Parts i.e., Motorcar Parts and Douglas Dynamics go up and down completely randomly.

Pair Corralation between Motorcar Parts and Douglas Dynamics

Given the investment horizon of 90 days Motorcar Parts of is expected to under-perform the Douglas Dynamics. In addition to that, Motorcar Parts is 2.06 times more volatile than Douglas Dynamics. It trades about -0.25 of its total potential returns per unit of risk. Douglas Dynamics is currently generating about -0.04 per unit of volatility. If you would invest  2,400  in Douglas Dynamics on February 5, 2024 and sell it today you would lose (46.00) from holding Douglas Dynamics or give up 1.92% of portfolio value over 90 days.

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

Motorcar Parts of  vs.  Douglas Dynamics

Motorcar Parts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Motorcar Parts of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Motorcar Parts and Douglas Dynamics

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

The idea behind Motorcar Parts of and Douglas Dynamics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.