Correlation Between LCI Industries and Escalade Incorporated

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

By analyzing existing cross correlation between LCI Industries and Escalade Incorporated, you can compare the effects of market volatilities on LCI Industries and Escalade Incorporated 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 LCI Industries with a short position of Escalade Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of LCI Industries and Escalade Incorporated.

Diversification Opportunities for LCI Industries and Escalade Incorporated

0.31

Correlation Coefficient

LCI Industries  Escalade Incorporated

Weak diversification

The 3 months correlation between LCI and Escalade is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding LCI Industries and Escalade Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Escalade Incorporated and LCI Industries 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 LCI Industries are associated (or correlated) with Escalade Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Escalade Incorporated has no effect on the direction of LCI Industries i.e., LCI Industries and Escalade Incorporated go up and down completely randomly.

Pair Corralation between LCI Industries and Escalade Incorporated

Given the investment horizon of 90 days LCI Industries is expected to generate 6.75 times less return on investment than Escalade Incorporated. But when comparing it to its historical volatility, LCI Industries is 1.43 times less risky than Escalade Incorporated. It trades about 0.02 of its potential returns per unit of risk. Escalade Incorporated is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,456  in Escalade Incorporated on September 13, 2024 and sell it today you would earn a total of  193.00  from holding Escalade Incorporated or generate 13.26% return on investment over 90 days.

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

LCI Industries  vs.  Escalade Incorporated

LCI Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LCI Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, LCI Industries is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Escalade Incorporated

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Escalade Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Escalade Incorporated sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LCI Industries and Escalade Incorporated

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

The idea behind LCI Industries and Escalade Incorporated 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.