Correlation Between Yellow Pages and Leons Furniture

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

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

Diversification Opportunities for Yellow Pages and Leons Furniture

-0.82

Correlation Coefficient

Yellow Pages  Leons Furniture

Pay attention - limited upside

The 3 months correlation between Yellow and Leons is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Yellow Pages Limited and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture and Yellow Pages 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 Yellow Pages Limited 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 Yellow Pages i.e., Yellow Pages and Leons Furniture go up and down completely randomly.

Pair Corralation between Yellow Pages and Leons Furniture

Given the investment horizon of 90 days Yellow Pages Limited is expected to under-perform the Leons Furniture. In addition to that, Yellow Pages is 1.62 times more volatile than Leons Furniture Limited. It trades about -0.09 of its total potential returns per unit of risk. Leons Furniture Limited is currently generating about -0.03 per unit of volatility. If you would invest  2,620  in Leons Furniture Limited on September 27, 2024 and sell it today you would lose (20.00) from holding Leons Furniture Limited or give up 0.76% of portfolio value over 90 days.

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

Yellow Pages Limited  vs.  Leons Furniture Limited

Yellow Pages Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yellow Pages Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Yellow Pages displayed solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady 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 Yellow Pages and Leons Furniture

The main advantage of trading using opposite Yellow Pages and Leons Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yellow Pages 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 Yellow Pages Limited 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.