Correlation Between Douglas Dynamics and LCI Industries

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

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

Diversification Opportunities for Douglas Dynamics and LCI Industries

0.47

Correlation Coefficient

Douglas Dynamics  LCI Industries

Very weak diversification

The 3 months correlation between Douglas and LCI is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Dynamics and LCI Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LCI Industries and Douglas Dynamics 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 Douglas Dynamics are associated (or correlated) with LCI Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LCI Industries has no effect on the direction of Douglas Dynamics i.e., Douglas Dynamics and LCI Industries go up and down completely randomly.

Pair Corralation between Douglas Dynamics and LCI Industries

Given the investment horizon of 90 days Douglas Dynamics is expected to under-perform the LCI Industries. But the stock apears to be less risky and, when comparing its historical volatility, Douglas Dynamics is 1.24 times less risky than LCI Industries. The stock trades about -0.01 of its potential returns per unit of risk. The LCI Industries is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  10,563  in LCI Industries on February 3, 2024 and sell it today you would lose (49.00) from holding LCI Industries or give up 0.46% of portfolio value over 90 days.

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

Douglas Dynamics  vs.  LCI Industries

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

LCI Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LCI Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, LCI Industries is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Douglas Dynamics and LCI Industries

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

The idea behind Douglas Dynamics and LCI Industries 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.