Correlation Between Richelieu Hardware and Leons Furniture

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

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

Diversification Opportunities for Richelieu Hardware and Leons Furniture

0.29

Correlation Coefficient

Richelieu Hardware  Leons Furniture

Modest diversification

The 3 months correlation between Richelieu and Leons is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Richelieu Hardware and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture and Richelieu Hardware 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 Richelieu Hardware 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 Richelieu Hardware i.e., Richelieu Hardware and Leons Furniture go up and down completely randomly.

Pair Corralation between Richelieu Hardware and Leons Furniture

Assuming the 90 days trading horizon Richelieu Hardware is expected to generate 3.9 times less return on investment than Leons Furniture. But when comparing it to its historical volatility, Richelieu Hardware is 1.49 times less risky than Leons Furniture. It trades about 0.02 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,551  in Leons Furniture Limited on September 3, 2024 and sell it today you would earn a total of  1,119  from holding Leons Furniture Limited or generate 72.15% return on investment over 90 days.

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

Richelieu Hardware  vs.  Leons Furniture Limited

Richelieu Hardware

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Richelieu Hardware are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Richelieu Hardware is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the 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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Richelieu Hardware and Leons Furniture

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

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.