Correlation Between La Z and Williams Sonoma

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

By analyzing existing cross correlation between La Z Boy Incorporated and Williams Sonoma, you can compare the effects of market volatilities on La Z and Williams Sonoma 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 La Z with a short position of Williams Sonoma. Check out your portfolio center. Please also check ongoing floating volatility patterns of La Z and Williams Sonoma.

Diversification Opportunities for La Z and Williams Sonoma

0.65

Correlation Coefficient

La Z  Williams Sonoma

Poor diversification

The 3 months correlation between LZB and Williams is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding La Z Boy Incorporated and Williams Sonoma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Williams Sonoma and La Z 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 La Z Boy Incorporated are associated (or correlated) with Williams Sonoma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Williams Sonoma has no effect on the direction of La Z i.e., La Z and Williams Sonoma go up and down completely randomly.

Pair Corralation between La Z and Williams Sonoma

Considering the 90-day investment horizon La Z is expected to generate 1.61 times less return on investment than Williams Sonoma. But when comparing it to its historical volatility, La Z Boy Incorporated is 3.97 times less risky than Williams Sonoma. It trades about 0.53 of its potential returns per unit of risk. Williams Sonoma is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  13,413  in Williams Sonoma on September 1, 2024 and sell it today you would earn a total of  3,789  from holding Williams Sonoma or generate 28.25% return on investment over 90 days.

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

La Z Boy Incorporated  vs.  Williams Sonoma

La Z Boy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in La Z Boy Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, La Z may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Williams Sonoma

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Sonoma are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Williams Sonoma displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with La Z and Williams Sonoma

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

The idea behind La Z Boy Incorporated and Williams Sonoma 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.