Correlation Between Trinity Industries and LB Foster
Can any of the company-specific risk be diversified away by investing in both Trinity Industries 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 Trinity Industries and LB Foster into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Trinity Industries and LB Foster, you can compare the effects of market volatilities on Trinity Industries 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 Trinity Industries with a short position of LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trinity Industries and LB Foster.
Diversification Opportunities for Trinity Industries and LB Foster
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Trinity and FSTR is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Trinity Industries and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and Trinity Industries 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 Trinity Industries 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 Trinity Industries i.e., Trinity Industries and LB Foster go up and down completely randomly.
Pair Corralation between Trinity Industries and LB Foster
Considering the 90-day investment horizon Trinity Industries is expected to generate 4.67 times less return on investment than LB Foster. But when comparing it to its historical volatility, Trinity Industries is 1.51 times less risky than LB Foster. It trades about 0.12 of its potential returns per unit of risk. LB Foster is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 1,963 in LB Foster on August 23, 2024 and sell it today you would earn a total of 764.00 from holding LB Foster or generate 38.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Trinity Industries vs. LB Foster
Performance |
| Timeline |
| Trinity Industries |
| LB Foster |
Trinity Industries and LB Foster Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Trinity Industries and LB Foster
The main advantage of trading using opposite Trinity Industries and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trinity Industries 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.| Trinity Industries vs. LB Foster | Trinity Industries vs. Freightcar America | Trinity Industries vs. Westinghouse Air Brake | Trinity Industries vs. Norfolk Southern |
| 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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