Correlation Between Torm PLC and LEGGETT

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Can any of the company-specific risk be diversified away by investing in both Torm PLC and LEGGETT 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 Torm PLC and LEGGETT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Torm PLC Class and LEGGETT PLATT INC, you can compare the effects of market volatilities on Torm PLC and LEGGETT 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 Torm PLC with a short position of LEGGETT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Torm PLC and LEGGETT.

Diversification Opportunities for Torm PLC and LEGGETT

0.68
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Torm PLC and LEGGETT

Given the investment horizon of 90 days Torm PLC is expected to generate 47.67 times less return on investment than LEGGETT. But when comparing it to its historical volatility, Torm PLC Class is 20.08 times less risky than LEGGETT. It trades about 0.02 of its potential returns per unit of risk. LEGGETT PLATT INC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,436  in LEGGETT PLATT INC on September 8, 2024 and sell it today you would lose (42.00) from holding LEGGETT PLATT INC or give up 0.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy85.95%
ValuesDaily Returns

Torm PLC Class  vs.  LEGGETT PLATT INC

 Performance 
       Timeline  
Torm PLC Class 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Torm PLC Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
LEGGETT PLATT INC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days LEGGETT PLATT INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LEGGETT is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Torm PLC and LEGGETT Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Torm PLC and LEGGETT

The main advantage of trading using opposite Torm PLC and LEGGETT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Torm PLC position performs unexpectedly, LEGGETT 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 LEGGETT will offset losses from the drop in LEGGETT's long position.
The idea behind Torm PLC Class and LEGGETT PLATT INC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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