Correlation Between Destination and Lowes Companies

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

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

Diversification Opportunities for Destination and Lowes Companies

-0.55

Correlation Coefficient

Destination  Lowes Companies

Excellent diversification

The 3 months correlation between Destination and Lowes is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Destination XL Group and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies and Destination 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 Destination XL Group are associated (or correlated) with Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Destination i.e., Destination and Lowes Companies go up and down completely randomly.

Pair Corralation between Destination and Lowes Companies

Given the investment horizon of 90 days Destination XL Group is expected to generate 1.26 times more return on investment than Lowes Companies. However, Destination is 1.26 times more volatile than Lowes Companies. It trades about -0.17 of its potential returns per unit of risk. Lowes Companies is currently generating about -0.31 per unit of risk. If you would invest  355.00  in Destination XL Group on January 30, 2024 and sell it today you would lose (18.00) from holding Destination XL Group or give up 5.07% of portfolio value over 90 days.

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

Destination XL Group  vs.  Lowes Companies

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destination XL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Lowes Companies

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Destination and Lowes Companies

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

The idea behind Destination XL Group and Lowes Companies 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.