Correlation Between DFS Furniture and PPHE Hotel

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

Diversification Opportunities for DFS Furniture and PPHE Hotel

0.23

Correlation Coefficient

DFS Furniture  PPHE Hotel

Modest diversification

The 3 months correlation between DFS and PPHE is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and PPHE Hotel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPHE Hotel Group 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 PPHE Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPHE Hotel Group has no effect on the direction of DFS Furniture i.e., DFS Furniture and PPHE Hotel go up and down completely randomly.

Pair Corralation between DFS Furniture and PPHE Hotel

Assuming the 90 days trading horizon DFS Furniture is expected to generate 1.48 times less return on investment than PPHE Hotel. But when comparing it to its historical volatility, DFS Furniture PLC is 1.04 times less risky than PPHE Hotel. It trades about 0.22 of its potential returns per unit of risk. PPHE Hotel Group is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  116,000  in PPHE Hotel Group on September 20, 2024 and sell it today you would earn a total of  16,500  from holding PPHE Hotel Group or generate 14.22% return on investment over 90 days.

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

DFS Furniture PLC  vs.  PPHE Hotel Group

DFS Furniture PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 11 (%) 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.

PPHE Hotel Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PPHE Hotel Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, PPHE Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with DFS Furniture and PPHE Hotel

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

The idea behind DFS Furniture PLC and PPHE Hotel Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.