Correlation Between Dream Office and Leons Furniture

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

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

Diversification Opportunities for Dream Office and Leons Furniture

0.42

Correlation Coefficient

Dream Office  Leons Furniture

Very weak diversification

The 3 months correlation between Dream and Leons is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Dream Office Real and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture and Dream Office 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 Dream Office Real 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 Dream Office i.e., Dream Office and Leons Furniture go up and down completely randomly.

Pair Corralation between Dream Office and Leons Furniture

Assuming the 90 days trading horizon Dream Office Real is expected to generate 1.11 times more return on investment than Leons Furniture. However, Dream Office is 1.11 times more volatile than Leons Furniture Limited. It trades about 0.02 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about -0.05 per unit of risk. If you would invest  1,736  in Dream Office Real on December 29, 2024 and sell it today you would earn a total of  22.00  from holding Dream Office Real or generate 1.27% return on investment over 90 days.

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

Dream Office Real  vs.  Leons Furniture Limited

Dream Office Real

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dream Office Real are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Dream Office is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Leons Furniture

Risk-Adjusted Performance

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 very healthy technical and fundamental indicators, Leons Furniture is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dream Office and Leons Furniture

The main advantage of trading using opposite Dream Office and Leons Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dream Office 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 Dream Office Real 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.