Correlation Between Foot Locker and LL Flooring

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

By analyzing existing cross correlation between Foot Locker and LL Flooring Holdings, you can compare the effects of market volatilities on Foot Locker and LL Flooring 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 Foot Locker with a short position of LL Flooring. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foot Locker and LL Flooring.

Diversification Opportunities for Foot Locker and LL Flooring

0.8

Correlation Coefficient

Foot Locker  LL Flooring

Very poor diversification

The 3 months correlation between Foot and LL Flooring is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Foot Locker and LL Flooring Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LL Flooring Holdings and Foot Locker 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 Foot Locker are associated (or correlated) with LL Flooring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LL Flooring Holdings has no effect on the direction of Foot Locker i.e., Foot Locker and LL Flooring go up and down completely randomly.

Pair Corralation between Foot Locker and LL Flooring

Allowing for the 90-day total investment horizon Foot Locker is expected to under-perform the LL Flooring. In addition to that, Foot Locker is 1.55 times more volatile than LL Flooring Holdings. It trades about -0.13 of its total potential returns per unit of risk. LL Flooring Holdings is currently generating about -0.12 per unit of volatility. If you would invest  219.00  in LL Flooring Holdings on February 27, 2024 and sell it today you would lose (49.00) from holding LL Flooring Holdings or give up 22.37% of portfolio value over 90 days.

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

Foot Locker  vs.  LL Flooring Holdings

Foot Locker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foot Locker has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

LL Flooring Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LL Flooring Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Foot Locker and LL Flooring

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

The idea behind Foot Locker and LL Flooring Holdings 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.