Correlation Between Donnelley Financial and Houlihan Lokey

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

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

Diversification Opportunities for Donnelley Financial and Houlihan Lokey

0.07

Correlation Coefficient

Donnelley Financial  Houlihan Lokey

Significant diversification

The 3 months correlation between Donnelley and Houlihan is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Donnelley Financial Solutions and Houlihan Lokey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Houlihan Lokey and Donnelley Financial 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 Donnelley Financial Solutions are associated (or correlated) with Houlihan Lokey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Houlihan Lokey has no effect on the direction of Donnelley Financial i.e., Donnelley Financial and Houlihan Lokey go up and down completely randomly.

Pair Corralation between Donnelley Financial and Houlihan Lokey

Given the investment horizon of 90 days Donnelley Financial Solutions is expected to generate 1.69 times more return on investment than Houlihan Lokey. However, Donnelley Financial is 1.69 times more volatile than Houlihan Lokey. It trades about 0.08 of its potential returns per unit of risk. Houlihan Lokey is currently generating about 0.05 per unit of risk. If you would invest  6,083  in Donnelley Financial Solutions on February 8, 2024 and sell it today you would earn a total of  206.00  from holding Donnelley Financial Solutions or generate 3.39% return on investment over 90 days.

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

Donnelley Financial Solutions  vs.  Houlihan Lokey

Donnelley Financial

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Donnelley Financial Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Donnelley Financial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Houlihan Lokey

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Donnelley Financial and Houlihan Lokey

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

The idea behind Donnelley Financial Solutions and Houlihan Lokey 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.