Correlation Between Canadian Utilities and Leons Furniture

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

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

Diversification Opportunities for Canadian Utilities and Leons Furniture

0.54

Correlation Coefficient

Canadian Utilities  Leons Furniture

Very weak diversification

The 3 months correlation between Canadian and Leons is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities 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 Canadian Utilities 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 Canadian Utilities 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 Canadian Utilities i.e., Canadian Utilities and Leons Furniture go up and down completely randomly.

Pair Corralation between Canadian Utilities and Leons Furniture

Assuming the 90 days horizon Canadian Utilities is expected to generate 5.92 times less return on investment than Leons Furniture. But when comparing it to its historical volatility, Canadian Utilities Limited is 2.67 times less risky than Leons Furniture. It trades about 0.08 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,265  in Leons Furniture Limited on April 20, 2025 and sell it today you would earn a total of  460.00  from holding Leons Furniture Limited or generate 20.31% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Leons Furniture Limited

Canadian Utilities

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canadian Utilities 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

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leons Furniture Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Leons Furniture displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Utilities and Leons Furniture

The main advantage of trading using opposite Canadian Utilities and Leons Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.