Correlation Between Lear and Stoneridge

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

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

Diversification Opportunities for Lear and Stoneridge

0.91

Correlation Coefficient

Lear  Stoneridge

Almost no diversification

The 3 months correlation between Lear and Stoneridge is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Stoneridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stoneridge 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 Stoneridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stoneridge has no effect on the direction of Lear i.e., Lear and Stoneridge go up and down completely randomly.

Pair Corralation between Lear and Stoneridge

Considering the 90-day investment horizon Lear Corporation is expected to generate 0.46 times more return on investment than Stoneridge. However, Lear Corporation is 2.17 times less risky than Stoneridge. It trades about -0.11 of its potential returns per unit of risk. Stoneridge is currently generating about -0.23 per unit of risk. If you would invest  11,356  in Lear Corporation on September 3, 2024 and sell it today you would lose (1,572) from holding Lear Corporation or give up 13.84% of portfolio value over 90 days.

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

Lear Corp.  vs.  Stoneridge

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.

Stoneridge

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stoneridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Lear and Stoneridge

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

The idea behind Lear Corporation and Stoneridge 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.