Correlation Between DFS Furniture and SWISS WATER
Can any of the company-specific risk be diversified away by investing in both DFS Furniture and SWISS WATER 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 DFS Furniture and SWISS WATER into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DFS Furniture PLC and SWISS WATER DECAFFCOFFEE, you can compare the effects of market volatilities on DFS Furniture and SWISS WATER 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 DFS Furniture with a short position of SWISS WATER. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFS Furniture and SWISS WATER.
Diversification Opportunities for DFS Furniture and SWISS WATER
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between DFS and SWISS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and SWISS WATER DECAFFCOFFEE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWISS WATER DECAFFCOFFEE and DFS 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 DFS Furniture PLC are associated (or correlated) with SWISS WATER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWISS WATER DECAFFCOFFEE has no effect on the direction of DFS Furniture i.e., DFS Furniture and SWISS WATER go up and down completely randomly.
Pair Corralation between DFS Furniture and SWISS WATER
Assuming the 90 days trading horizon DFS Furniture PLC is expected to generate 0.74 times more return on investment than SWISS WATER. However, DFS Furniture PLC is 1.35 times less risky than SWISS WATER. It trades about 0.28 of its potential returns per unit of risk. SWISS WATER DECAFFCOFFEE is currently generating about -0.09 per unit of risk. If you would invest 151.00 in DFS Furniture PLC on September 13, 2024 and sell it today you would earn a total of 15.00 from holding DFS Furniture PLC or generate 9.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
DFS Furniture PLC vs. SWISS WATER DECAFFCOFFEE
Performance |
| Timeline |
| DFS Furniture PLC |
| SWISS WATER DECAFFCOFFEE |
DFS Furniture and SWISS WATER Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DFS Furniture and SWISS WATER
The main advantage of trading using opposite DFS Furniture and SWISS WATER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFS Furniture position performs unexpectedly, SWISS WATER 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 SWISS WATER will offset losses from the drop in SWISS WATER's long position.| DFS Furniture vs. Apple Inc | DFS Furniture vs. Apple Inc | DFS Furniture vs. Apple Inc | DFS Furniture vs. Apple Inc |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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