Correlation Between Floor Decor and Jadeart

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

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

Diversification Opportunities for Floor Decor and Jadeart

0.6

Correlation Coefficient

Floor Decor  Jadeart

Poor diversification

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

Pair Corralation between Floor Decor and Jadeart

Considering the 90-day investment horizon Floor Decor is expected to generate 12.64 times less return on investment than Jadeart. But when comparing it to its historical volatility, Floor Decor Holdings is 8.83 times less risky than Jadeart. It trades about 0.03 of its potential returns per unit of risk. Jadeart Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.47  in Jadeart Group on September 12, 2024 and sell it today you would lose (0.23) from holding Jadeart Group or give up 48.94% of portfolio value over 90 days.

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

Floor Decor Holdings  vs.  Jadeart Group

Floor Decor Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Floor Decor Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Jadeart Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jadeart Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Jadeart sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Floor Decor and Jadeart

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

The idea behind Floor Decor Holdings and Jadeart 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .