Correlation Between Destination and Tandy Leather

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

By analyzing existing cross correlation between Destination XL Group and Tandy Leather Factory, you can compare the effects of market volatilities on Destination and Tandy Leather 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 Destination with a short position of Tandy Leather. Check out your portfolio center. Please also check ongoing floating volatility patterns of Destination and Tandy Leather.

Diversification Opportunities for Destination and Tandy Leather

-0.13

Correlation Coefficient

Destination  Tandy Leather

Good diversification

The 3 months correlation between Destination and Tandy is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Destination XL Group and Tandy Leather Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandy Leather Factory and Destination 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 Destination XL Group are associated (or correlated) with Tandy Leather. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandy Leather Factory has no effect on the direction of Destination i.e., Destination and Tandy Leather go up and down completely randomly.

Pair Corralation between Destination and Tandy Leather

Given the investment horizon of 90 days Destination XL Group is expected to generate 2.21 times more return on investment than Tandy Leather. However, Destination is 2.21 times more volatile than Tandy Leather Factory. It trades about 0.13 of its potential returns per unit of risk. Tandy Leather Factory is currently generating about -0.29 per unit of risk. If you would invest  261.00  in Destination XL Group on October 22, 2024 and sell it today you would earn a total of  15.00  from holding Destination XL Group or generate 5.75% return on investment over 90 days.

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

Destination XL Group  vs.  Tandy Leather Factory

Destination XL Group

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Destination XL Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Destination is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Tandy Leather Factory

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Tandy Leather is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Destination and Tandy Leather

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

The idea behind Destination XL Group and Tandy Leather Factory 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 Transaction History module to view history of all your transactions and understand their impact on performance.