Correlation Between Leons Furniture and Transatlantic Mining

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

Diversification Opportunities for Leons Furniture and Transatlantic Mining

-0.11

Correlation Coefficient

Leons Furniture  Transatlantic Mining

Good diversification

The 3 months correlation between Leons and Transatlantic is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Leons Furniture Limited and Transatlantic Mining Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transatlantic Mining Corp 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 Transatlantic Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transatlantic Mining Corp has no effect on the direction of Leons Furniture i.e., Leons Furniture and Transatlantic Mining go up and down completely randomly.

Pair Corralation between Leons Furniture and Transatlantic Mining

Assuming the 90 days trading horizon Leons Furniture Limited is expected to under-perform the Transatlantic Mining. But the stock apears to be less risky and, when comparing its historical volatility, Leons Furniture Limited is 5.16 times less risky than Transatlantic Mining. The stock trades about -0.06 of its potential returns per unit of risk. The Transatlantic Mining Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Transatlantic Mining Corp on December 25, 2024 and sell it today you would earn a total of  2.50  from holding Transatlantic Mining Corp or generate 35.71% return on investment over 90 days.

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

Leons Furniture Limited  vs.  Transatlantic Mining Corp

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 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.

Transatlantic Mining Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transatlantic Mining Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Transatlantic Mining showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leons Furniture and Transatlantic Mining

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

The idea behind Leons Furniture Limited and Transatlantic Mining Corp 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.

Check out your portfolio center.

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 Correlations module to find global opportunities by holding instruments from different markets.