Correlation Between Lear and Douglas Dynamics

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

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

Diversification Opportunities for Lear and Douglas Dynamics

0.82

Correlation Coefficient

Lear  Douglas Dynamics

Very poor diversification

The 3 months correlation between Lear and Douglas is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics and Lear 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 Lear Corporation are associated (or correlated) with Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Lear i.e., Lear and Douglas Dynamics go up and down completely randomly.

Pair Corralation between Lear and Douglas Dynamics

Considering the 90-day investment horizon Lear Corporation is expected to under-perform the Douglas Dynamics. But the stock apears to be less risky and, when comparing its historical volatility, Lear Corporation is 1.21 times less risky than Douglas Dynamics. The stock trades about -0.11 of its potential returns per unit of risk. The Douglas Dynamics is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  2,764  in Douglas Dynamics on September 24, 2024 and sell it today you would lose (380.00) from holding Douglas Dynamics or give up 13.75% of portfolio value over 90 days.

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

Lear Corp.  vs.  Douglas Dynamics

Lear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lear Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Lear and Douglas Dynamics

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

The idea behind Lear Corporation and Douglas Dynamics 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.