Correlation Between DFS Furniture and Wyndham Hotels

Can any of the company-specific risk be diversified away by investing in both DFS Furniture and Wyndham Hotels 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 Wyndham Hotels 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 Wyndham Hotels Resorts, you can compare the effects of market volatilities on DFS Furniture and Wyndham Hotels 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 Wyndham Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFS Furniture and Wyndham Hotels.

Diversification Opportunities for DFS Furniture and Wyndham Hotels

0.66

Correlation Coefficient

DFS Furniture  Wyndham Hotels

Poor diversification

The 3 months correlation between DFS and Wyndham is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and Wyndham Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wyndham Hotels Resorts 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 Wyndham Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wyndham Hotels Resorts has no effect on the direction of DFS Furniture i.e., DFS Furniture and Wyndham Hotels go up and down completely randomly.

Pair Corralation between DFS Furniture and Wyndham Hotels

Assuming the 90 days trading horizon DFS Furniture is expected to generate 1.55 times less return on investment than Wyndham Hotels. In addition to that, DFS Furniture is 1.08 times more volatile than Wyndham Hotels Resorts. It trades about 0.15 of its total potential returns per unit of risk. Wyndham Hotels Resorts is currently generating about 0.26 per unit of volatility. If you would invest  7,831  in Wyndham Hotels Resorts on September 14, 2024 and sell it today you would earn a total of  2,646  from holding Wyndham Hotels Resorts or generate 33.79% return on investment over 90 days.

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

DFS Furniture PLC  vs.  Wyndham Hotels Resorts

DFS Furniture PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, DFS Furniture exhibited solid returns over the last few months and may actually be approaching a breakup point.

Wyndham Hotels Resorts

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Wyndham Hotels unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DFS Furniture and Wyndham Hotels

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

The idea behind DFS Furniture PLC and Wyndham Hotels Resorts 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.