Correlation Between Analog Devices and LB Foster

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

-0.57

Correlation Coefficient

Analog Devices  LB Foster

Excellent diversification

The 3 months correlation between Analog and FSTR is -0.57. 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 generate 15.09 times less return on investment than LB Foster. But when comparing it to its historical volatility, Analog Devices is 1.6 times less risky than LB Foster. It trades about 0.03 of its potential returns per unit of risk. LB Foster is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,850  in LB Foster on September 6, 2024 and sell it today you would earn a total of  1,075  from holding LB Foster or generate 58.11% return on investment over 90 days.

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

Analog Devices  vs.  LB Foster

Analog Devices

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.