Correlation Between Analog Devices and LB Foster

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Can any of the company-specific risk be diversified away by investing in both Analog Devices and LB Foster 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 Analog Devices and LB Foster into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Analog Devices and LB Foster, you can compare the effects of market volatilities on Analog Devices and LB Foster 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 Analog Devices with a short position of LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and LB Foster.

Diversification Opportunities for Analog Devices and LB Foster

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Analog and FSTR is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and Analog Devices 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 Analog Devices are associated (or correlated) with LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Analog Devices i.e., Analog Devices and LB Foster go up and down completely randomly.

Pair Corralation between Analog Devices and LB Foster

Considering the 90-day investment horizon Analog Devices is expected to under-perform the LB Foster. But the stock apears to be less risky and, when comparing its historical volatility, Analog Devices is 1.61 times less risky than LB Foster. The stock trades about -0.01 of its potential returns per unit of risk. The LB Foster is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,878  in LB Foster on September 7, 2024 and sell it today you would earn a total of  1,051  from holding LB Foster or generate 55.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Analog Devices  vs.  LB Foster

 Performance 
       Timeline  
Analog Devices 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
LB Foster 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Analog Devices and LB Foster Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Analog Devices and LB Foster

The main advantage of trading using opposite Analog Devices and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices position performs unexpectedly, LB Foster 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 LB Foster will offset losses from the drop in LB Foster's long position.
The idea behind Analog Devices and LB Foster 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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