Correlation Between Dorman Products and FirstCash

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

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

Diversification Opportunities for Dorman Products and FirstCash

-0.63

Correlation Coefficient

Dorman Products  FirstCash

Excellent diversification

The 3 months correlation between Dorman and FirstCash is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and FirstCash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstCash 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 FirstCash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstCash has no effect on the direction of Dorman Products i.e., Dorman Products and FirstCash go up and down completely randomly.

Pair Corralation between Dorman Products and FirstCash

Given the investment horizon of 90 days Dorman Products is expected to generate 1.28 times more return on investment than FirstCash. However, Dorman Products is 1.28 times more volatile than FirstCash. It trades about 0.2 of its potential returns per unit of risk. FirstCash is currently generating about -0.07 per unit of risk. If you would invest  10,950  in Dorman Products on September 2, 2024 and sell it today you would earn a total of  3,048  from holding Dorman Products or generate 27.84% return on investment over 90 days.

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

Dorman Products  vs.  FirstCash

Dorman Products

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

FirstCash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirstCash has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Dorman Products and FirstCash

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

The idea behind Dorman Products and FirstCash 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.