Correlation Between Leons Furniture and American Hotel

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

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

Diversification Opportunities for Leons Furniture and American Hotel

0.62

Correlation Coefficient

Leons Furniture  American Hotel

Poor diversification

The 3 months correlation between Leons and American is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Leons Furniture Limited and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income and Leons 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 Leons Furniture Limited are associated (or correlated) with American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of Leons Furniture i.e., Leons Furniture and American Hotel go up and down completely randomly.

Pair Corralation between Leons Furniture and American Hotel

Assuming the 90 days trading horizon Leons Furniture Limited is expected to generate 0.45 times more return on investment than American Hotel. However, Leons Furniture Limited is 2.24 times less risky than American Hotel. It trades about -0.12 of its potential returns per unit of risk. American Hotel Income is currently generating about -0.08 per unit of risk. If you would invest  2,966  in Leons Furniture Limited on September 13, 2024 and sell it today you would lose (311.00) from holding Leons Furniture Limited or give up 10.49% of portfolio value over 90 days.

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

Leons Furniture Limited  vs.  American Hotel Income

Leons Furniture

Risk-Adjusted Performance

0 of 100

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

American Hotel Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Hotel Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Leons Furniture and American Hotel

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

The idea behind Leons Furniture Limited and American Hotel Income 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.