Correlation Between DFS Furniture and Marks

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

Diversification Opportunities for DFS Furniture and Marks

0.05

Correlation Coefficient

DFS Furniture  Marks

Significant diversification

The 3 months correlation between DFS and Marks is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and Marks and Spencer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marks and Spencer 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 Marks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marks and Spencer has no effect on the direction of DFS Furniture i.e., DFS Furniture and Marks go up and down completely randomly.

Pair Corralation between DFS Furniture and Marks

Assuming the 90 days trading horizon DFS Furniture PLC is expected to generate 1.28 times more return on investment than Marks. However, DFS Furniture is 1.28 times more volatile than Marks and Spencer. It trades about -0.03 of its potential returns per unit of risk. Marks and Spencer is currently generating about -0.05 per unit of risk. If you would invest  14,160  in DFS Furniture PLC on December 28, 2024 and sell it today you would lose (1,060) from holding DFS Furniture PLC or give up 7.49% of portfolio value over 90 days.

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

DFS Furniture PLC  vs.  Marks and Spencer

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Marks and Spencer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Marks and Spencer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with DFS Furniture and Marks

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

The idea behind DFS Furniture PLC and Marks and Spencer 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.