Correlation Between DFS Furniture and Nationwide Building

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

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

Diversification Opportunities for DFS Furniture and Nationwide Building

0.33

Correlation Coefficient

DFS Furniture  Nationwide Building

Weak diversification

The 3 months correlation between DFS and Nationwide is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC and Nationwide Building Society in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Building and DFS Furniture 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 DFS Furniture PLC are associated (or correlated) with Nationwide Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Building has no effect on the direction of DFS Furniture i.e., DFS Furniture and Nationwide Building go up and down completely randomly.

Pair Corralation between DFS Furniture and Nationwide Building

Assuming the 90 days trading horizon DFS Furniture PLC is expected to generate 12.93 times more return on investment than Nationwide Building. However, DFS Furniture is 12.93 times more volatile than Nationwide Building Society. It trades about 0.27 of its potential returns per unit of risk. Nationwide Building Society is currently generating about 0.0 per unit of risk. If you would invest  13,050  in DFS Furniture PLC on April 20, 2025 and sell it today you would earn a total of  4,450  from holding DFS Furniture PLC or generate 34.1% return on investment over 90 days.

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

DFS Furniture PLC  vs.  Nationwide Building Society

DFS Furniture PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, DFS Furniture exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nationwide Building

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nationwide Building Society has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Nationwide Building is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with DFS Furniture and Nationwide Building

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

The idea behind DFS Furniture PLC and Nationwide Building Society 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.