Correlation Between Rocky Mountain and Leons Furniture

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

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

Diversification Opportunities for Rocky Mountain and Leons Furniture

0.6

Correlation Coefficient

Rocky Mountain  Leons Furniture

Poor diversification

The 3 months correlation between Rocky and Leons is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture and Rocky Mountain 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 Rocky Mountain Liquor 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 Rocky Mountain i.e., Rocky Mountain and Leons Furniture go up and down completely randomly.

Pair Corralation between Rocky Mountain and Leons Furniture

Assuming the 90 days horizon Rocky Mountain Liquor is expected to under-perform the Leons Furniture. In addition to that, Rocky Mountain is 5.52 times more volatile than Leons Furniture Limited. It trades about -0.19 of its total potential returns per unit of risk. Leons Furniture Limited is currently generating about -0.13 per unit of volatility. If you would invest  2,683  in Leons Furniture Limited on September 19, 2024 and sell it today you would lose (78.00) from holding Leons Furniture Limited or give up 2.91% of portfolio value over 90 days.

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

Rocky Mountain Liquor  vs.  Leons Furniture Limited

Rocky Mountain Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Mountain Liquor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Rocky Mountain and Leons Furniture

The main advantage of trading using opposite Rocky Mountain and Leons Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocky Mountain 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 Rocky Mountain Liquor 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.