Correlation Between Dow Jones and LB Foster
Can any of the company-specific risk be diversified away by investing in both Dow Jones and LB Foster 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 Dow Jones and LB Foster into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and LB Foster, you can compare the effects of market volatilities on Dow Jones and LB Foster 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 Dow Jones with a short position of LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and LB Foster.
Diversification Opportunities for Dow Jones and LB Foster
Poor diversification
The 3 months correlation between Dow and FSTR is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Dow Jones i.e., Dow Jones and LB Foster go up and down completely randomly.
Pair Corralation between Dow Jones and LB Foster
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.04 times less return on investment than LB Foster. But when comparing it to its historical volatility, Dow Jones Industrial is 4.64 times less risky than LB Foster. It trades about 0.1 of its potential returns per unit of risk. LB Foster is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,373 in LB Foster on August 27, 2024 and sell it today you would earn a total of 407.00 from holding LB Foster or generate 17.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. LB Foster
Performance |
| Timeline |
Dow Jones and LB Foster Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
LB Foster
Pair trading matchups for LB Foster
Pair Trading with Dow Jones and LB Foster
The main advantage of trading using opposite Dow Jones and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, LB Foster 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 LB Foster will offset losses from the drop in LB Foster's long position.| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
| LB Foster vs. Trinity Industries | LB Foster vs. Freightcar America | LB Foster vs. Westinghouse Air Brake | LB Foster vs. Norfolk Southern |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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