Correlation Between Marks and DFS Furniture

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

By analyzing existing cross correlation between Marks and Spencer and DFS Furniture PLC, you can compare the effects of market volatilities on Marks and DFS 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 Marks with a short position of DFS Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marks and DFS Furniture.

Diversification Opportunities for Marks and DFS Furniture

0.45

Correlation Coefficient

Marks  DFS Furniture

Very weak diversification

The 3 months correlation between Marks and DFS is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Marks and Spencer and DFS Furniture PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DFS Furniture PLC and Marks 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 Marks and Spencer are associated (or correlated) with DFS Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DFS Furniture PLC has no effect on the direction of Marks i.e., Marks and DFS Furniture go up and down completely randomly.

Pair Corralation between Marks and DFS Furniture

Assuming the 90 days trading horizon Marks and Spencer is expected to under-perform the DFS Furniture. But the stock apears to be less risky and, when comparing its historical volatility, Marks and Spencer is 1.15 times less risky than DFS Furniture. The stock trades about -0.06 of its potential returns per unit of risk. The DFS Furniture PLC is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  13,720  in DFS Furniture PLC on December 4, 2024 and sell it today you would lose (520.00) from holding DFS Furniture PLC or give up 3.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Marks and Spencer  vs.  DFS Furniture PLC

Marks and Spencer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Marks and Spencer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

DFS Furniture PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days DFS Furniture PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DFS Furniture is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Marks and DFS Furniture

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

The idea behind Marks and Spencer and DFS Furniture PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.