Correlation Between Malibu Boats and Dorman Products

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

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

Diversification Opportunities for Malibu Boats and Dorman Products

0.68

Correlation Coefficient

Malibu Boats  Dorman Products

Poor diversification

The 3 months correlation between Malibu and Dorman is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Malibu Boats and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products and Malibu Boats 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 Malibu Boats are associated (or correlated) with Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of Malibu Boats i.e., Malibu Boats and Dorman Products go up and down completely randomly.

Pair Corralation between Malibu Boats and Dorman Products

Given the investment horizon of 90 days Malibu Boats is expected to generate 1.27 times less return on investment than Dorman Products. In addition to that, Malibu Boats is 1.22 times more volatile than Dorman Products. It trades about 0.13 of its total potential returns per unit of risk. Dorman Products is currently generating about 0.2 per unit of volatility. If you would invest  10,950  in Dorman Products on September 1, 2024 and sell it today you would earn a total of  3,048  from holding Dorman Products or generate 27.84% return on investment over 90 days.

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

Malibu Boats  vs.  Dorman Products

Malibu Boats

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Malibu Boats are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Malibu Boats unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dorman Products

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Malibu Boats and Dorman Products

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

The idea behind Malibu Boats and Dorman Products 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.