Correlation Between Dorman Products and Monro Muffler

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

By analyzing existing cross correlation between Dorman Products and Monro Muffler Brake, you can compare the effects of market volatilities on Dorman Products and Monro Muffler 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 Dorman Products with a short position of Monro Muffler. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dorman Products and Monro Muffler.

Diversification Opportunities for Dorman Products and Monro Muffler

0.28

Correlation Coefficient

Dorman Products  Monro Muffler

Modest diversification

The 3 months correlation between Dorman and Monro is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and Monro Muffler Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monro Muffler Brake and Dorman Products 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 Dorman Products are associated (or correlated) with Monro Muffler. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monro Muffler Brake has no effect on the direction of Dorman Products i.e., Dorman Products and Monro Muffler go up and down completely randomly.

Pair Corralation between Dorman Products and Monro Muffler

Given the investment horizon of 90 days Dorman Products is expected to generate 0.43 times more return on investment than Monro Muffler. However, Dorman Products is 2.31 times less risky than Monro Muffler. It trades about -0.01 of its potential returns per unit of risk. Monro Muffler Brake is currently generating about -0.01 per unit of risk. If you would invest  13,120  in Dorman Products on March 1, 2025 and sell it today you would lose (395.00) from holding Dorman Products or give up 3.01% of portfolio value over 90 days.

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

Dorman Products  vs.  Monro Muffler Brake

Dorman Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dorman Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dorman Products is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Monro Muffler Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monro Muffler Brake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Monro Muffler is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dorman Products and Monro Muffler

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

The idea behind Dorman Products and Monro Muffler Brake 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.