Correlation Between Lear and Service Team

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

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

Diversification Opportunities for Lear and Service Team

0.0

Correlation Coefficient

Lear  Service Team

Pay attention - limited upside

The 3 months correlation between Lear and Service is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Service Team in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Service Team 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 Service Team. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Service Team has no effect on the direction of Lear i.e., Lear and Service Team go up and down completely randomly.

Pair Corralation between Lear and Service Team

Considering the 90-day investment horizon Lear Corporation is expected to generate 0.16 times more return on investment than Service Team. However, Lear Corporation is 6.36 times less risky than Service Team. It trades about -0.11 of its potential returns per unit of risk. Service Team is currently generating about -0.13 per unit of risk. If you would invest  11,356  in Lear Corporation on September 1, 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	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Lear Corp.  vs.  Service Team

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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Service Team

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Service Team 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 rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Lear and Service Team

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

The idea behind Lear Corporation and Service Team 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.