Correlation Between DFS Furniture and Knights Group

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

Diversification Opportunities for DFS Furniture and Knights Group

-0.2

Correlation Coefficient

DFS Furniture  Knights Group

Good diversification

The 3 months correlation between DFS and Knights is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and Knights Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knights Group Holdings 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 Knights Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knights Group Holdings has no effect on the direction of DFS Furniture i.e., DFS Furniture and Knights Group go up and down completely randomly.

Pair Corralation between DFS Furniture and Knights Group

Assuming the 90 days trading horizon DFS Furniture PLC is expected to under-perform the Knights Group. In addition to that, DFS Furniture is 1.54 times more volatile than Knights Group Holdings. It trades about -0.01 of its total potential returns per unit of risk. Knights Group Holdings is currently generating about 0.23 per unit of volatility. If you would invest  10,950  in Knights Group Holdings on December 21, 2024 and sell it today you would earn a total of  3,050  from holding Knights Group Holdings or generate 27.85% 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.  Knights Group Holdings

DFS Furniture PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days DFS Furniture PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DFS Furniture is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Knights Group Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Knights Group Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Knights Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DFS Furniture and Knights Group

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

The idea behind DFS Furniture PLC and Knights Group Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.