Correlation Between Thermon Group and Forestar

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

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

Diversification Opportunities for Thermon Group and Forestar

0.39

Correlation Coefficient

Thermon Group  Forestar

Weak diversification

The @@bw1eo months correlation between Thermon and Forestar is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Thermon Group Holdings and Forestar Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forestar Group and Thermon Group 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 Thermon Group Holdings are associated (or correlated) with Forestar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forestar Group has no effect on the direction of Thermon Group i.e., Thermon Group and Forestar go up and down completely randomly.

Pair Corralation between Thermon Group and Forestar

Considering the 90-day investment horizon Thermon Group is expected to generate 1.02 times less return on investment than Forestar. But when comparing it to its historical volatility, Thermon Group Holdings is 1.14 times less risky than Forestar. It trades about 0.08 of its potential returns per unit of risk. Forestar Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,560  in Forestar Group on February 4, 2024 and sell it today you would earn a total of  1,797  from holding Forestar Group or generate 115.19% return on investment over 90 days.

Time Period	@@bw1EO Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Thermon Group Holdings  vs.  Forestar Group

Thermon Group Holdings

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Thermon Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Thermon Group is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Forestar Group

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Thermon Group and Forestar

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

The idea behind Thermon Group Holdings and Forestar Group 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.