Correlation Between Apple and Leons Furniture

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

By analyzing existing cross correlation between Apple Inc CDR and Leons Furniture Limited, you can compare the effects of market volatilities on Apple and Leons Furniture 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 Apple with a short position of Leons Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Leons Furniture.

Diversification Opportunities for Apple and Leons Furniture

-0.38

Correlation Coefficient

Apple  Leons Furniture

Very good diversification

The 3 months correlation between Apple and Leons is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc CDR and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture and Apple 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 Apple Inc CDR are associated (or correlated) with Leons Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leons Furniture has no effect on the direction of Apple i.e., Apple and Leons Furniture go up and down completely randomly.

Pair Corralation between Apple and Leons Furniture

Assuming the 90 days trading horizon Apple is expected to generate 1.83 times less return on investment than Leons Furniture. But when comparing it to its historical volatility, Apple Inc CDR is 1.34 times less risky than Leons Furniture. It trades about 0.07 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,760  in Leons Furniture Limited on September 12, 2024 and sell it today you would earn a total of  900.00  from holding Leons Furniture Limited or generate 51.14% return on investment over 90 days.

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

Apple Inc CDR  vs.  Leons Furniture Limited

Apple Inc CDR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc CDR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Leons Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Apple and Leons Furniture

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

The idea behind Apple Inc CDR and Leons Furniture Limited 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.