Correlation Between RH and Leslies

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

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

Diversification Opportunities for RH and Leslies

-0.5

Correlation Coefficient

RH  Leslies

Very good diversification

The 3 months correlation between RH and Leslies is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding RH and Leslies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leslies and RH 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 RH are associated (or correlated) with Leslies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leslies has no effect on the direction of RH i.e., RH and Leslies go up and down completely randomly.

Pair Corralation between RH and Leslies

Allowing for the 90-day total investment horizon RH is expected to generate 0.51 times more return on investment than Leslies. However, RH is 1.96 times less risky than Leslies. It trades about 0.16 of its potential returns per unit of risk. Leslies is currently generating about -0.01 per unit of risk. If you would invest  32,987  in RH on September 16, 2024 and sell it today you would earn a total of  11,617  from holding RH or generate 35.22% return on investment over 90 days.

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

RH  vs.  Leslies

RH

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical indicators, RH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Leslies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leslies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Leslies is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with RH and Leslies

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

The idea behind RH and Leslies 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.