Correlation Between Old Dominion and Smith Douglas

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

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

Diversification Opportunities for Old Dominion and Smith Douglas

-0.52

Correlation Coefficient

Old Dominion  Smith Douglas

Excellent diversification

The 3 months correlation between Old and Smith is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Old Dominion Freight and Smith Douglas Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Douglas Homes and Old Dominion 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 Old Dominion Freight are associated (or correlated) with Smith Douglas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Douglas Homes has no effect on the direction of Old Dominion i.e., Old Dominion and Smith Douglas go up and down completely randomly.

Pair Corralation between Old Dominion and Smith Douglas

Given the investment horizon of 90 days Old Dominion Freight is expected to generate 0.87 times more return on investment than Smith Douglas. However, Old Dominion Freight is 1.14 times less risky than Smith Douglas. It trades about 0.07 of its potential returns per unit of risk. Smith Douglas Homes is currently generating about 0.05 per unit of risk. If you would invest  20,375  in Old Dominion Freight on September 5, 2024 and sell it today you would earn a total of  728.00  from holding Old Dominion Freight or generate 3.57% return on investment over 90 days.

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

Old Dominion Freight  vs.  Smith Douglas Homes

Old Dominion Freight

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Old Dominion Freight are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Old Dominion disclosed solid returns over the last few months and may actually be approaching a breakup point.

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Smith Douglas is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Old Dominion and Smith Douglas

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

The idea behind Old Dominion Freight and Smith Douglas Homes 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.