Correlation Between Leons Furniture and Transcontinental

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

Diversification Opportunities for Leons Furniture and Transcontinental

-0.23

Correlation Coefficient

Leons Furniture  Transcontinental

Very good diversification

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

Pair Corralation between Leons Furniture and Transcontinental

Assuming the 90 days trading horizon Leons Furniture Limited is expected to under-perform the Transcontinental. But the stock apears to be less risky and, when comparing its historical volatility, Leons Furniture Limited is 1.11 times less risky than Transcontinental. The stock trades about -0.13 of its potential returns per unit of risk. The Transcontinental is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,660  in Transcontinental on September 22, 2024 and sell it today you would earn a total of  140.00  from holding Transcontinental or generate 8.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Leons Furniture Limited  vs.  Transcontinental

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 weak 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.

Transcontinental

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transcontinental are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Transcontinental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Leons Furniture and Transcontinental

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

The idea behind Leons Furniture Limited and Transcontinental 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.