Correlation Between LB Foster and Trinity Industries

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

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

Diversification Opportunities for LB Foster and Trinity Industries

0.72

Correlation Coefficient

LB Foster  Trinity Industries

Poor diversification

The 3 months correlation between FSTR and Trinity is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Trinity Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Industries 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 Trinity Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Industries has no effect on the direction of LB Foster i.e., LB Foster and Trinity Industries go up and down completely randomly.

Pair Corralation between LB Foster and Trinity Industries

Given the investment horizon of 90 days LB Foster is expected to under-perform the Trinity Industries. But the stock apears to be less risky and, when comparing its historical volatility, LB Foster is 1.1 times less risky than Trinity Industries. The stock trades about -0.47 of its potential returns per unit of risk. The Trinity Industries is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  2,694  in Trinity Industries on February 1, 2024 and sell it today you would lose (92.00) from holding Trinity Industries or give up 3.41% of portfolio value over 90 days.

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

LB Foster  vs.  Trinity Industries

LB Foster

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 1 (%) 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.

Trinity Industries

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Trinity Industries is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with LB Foster and Trinity Industries

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

The idea behind LB Foster and Trinity 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.