Correlation Between HOME DEPOT and Leons Furniture

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

By analyzing existing cross correlation between HOME DEPOT CDR and Leons Furniture Limited, you can compare the effects of market volatilities on HOME DEPOT and Leons Furniture 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 HOME DEPOT with a short position of Leons Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of HOME DEPOT and Leons Furniture.

Diversification Opportunities for HOME DEPOT and Leons Furniture

0.64

Correlation Coefficient

HOME DEPOT  Leons Furniture

Poor diversification

The 3 months correlation between HOME and Leons is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding HOME DEPOT CDR and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture and HOME DEPOT 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 HOME DEPOT CDR are associated (or correlated) with Leons Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leons Furniture has no effect on the direction of HOME DEPOT i.e., HOME DEPOT and Leons Furniture go up and down completely randomly.

Pair Corralation between HOME DEPOT and Leons Furniture

Assuming the 90 days trading horizon HOME DEPOT CDR is expected to under-perform the Leons Furniture. But the stock apears to be less risky and, when comparing its historical volatility, HOME DEPOT CDR is 1.24 times less risky than Leons Furniture. The stock trades about -0.09 of its potential returns per unit of risk. The Leons Furniture Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,530  in Leons Furniture Limited on December 29, 2024 and sell it today you would lose (148.00) from holding Leons Furniture Limited or give up 5.85% of portfolio value over 90 days.

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

HOME DEPOT CDR  vs.  Leons Furniture Limited

HOME DEPOT CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days HOME DEPOT CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Leons Furniture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Leons Furniture is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with HOME DEPOT and Leons Furniture

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

The idea behind HOME DEPOT CDR and Leons Furniture Limited 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.