Correlation Between DFS Furniture and Valero Energy

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

By analyzing existing cross correlation between DFS Furniture PLC and Valero Energy, you can compare the effects of market volatilities on DFS Furniture and Valero Energy 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 DFS Furniture with a short position of Valero Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFS Furniture and Valero Energy.

Diversification Opportunities for DFS Furniture and Valero Energy

-0.18

Correlation Coefficient

DFS Furniture  Valero Energy

Good diversification

The 3 months correlation between DFS and Valero is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and DFS Furniture 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 DFS Furniture PLC are associated (or correlated) with Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of DFS Furniture i.e., DFS Furniture and Valero Energy go up and down completely randomly.

Pair Corralation between DFS Furniture and Valero Energy

Assuming the 90 days trading horizon DFS Furniture is expected to generate 1.3 times less return on investment than Valero Energy. In addition to that, DFS Furniture is 1.33 times more volatile than Valero Energy. It trades about 0.02 of its total potential returns per unit of risk. Valero Energy is currently generating about 0.04 per unit of volatility. If you would invest  11,302  in Valero Energy on December 20, 2024 and sell it today you would earn a total of  494.00  from holding Valero Energy or generate 4.37% return on investment over 90 days.

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

DFS Furniture PLC  vs.  Valero Energy

DFS Furniture PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, DFS Furniture is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Valero Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Valero Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with DFS Furniture and Valero Energy

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

The idea behind DFS Furniture PLC and Valero Energy 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.