Correlation Between Ethan Allen and Bassett Furniture
Can any of the company-specific risk be diversified away by investing in both Ethan Allen and Bassett 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 Ethan Allen and Bassett Furniture into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ethan Allen Interiors and Bassett Furniture Industries, you can compare the effects of market volatilities on Ethan Allen and Bassett 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 Ethan Allen with a short position of Bassett Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethan Allen and Bassett Furniture.
Diversification Opportunities for Ethan Allen and Bassett Furniture
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ethan and Bassett is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ethan Allen Interiors and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and Ethan Allen 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 Ethan Allen Interiors are associated (or correlated) with Bassett Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bassett Furniture has no effect on the direction of Ethan Allen i.e., Ethan Allen and Bassett Furniture go up and down completely randomly.
Pair Corralation between Ethan Allen and Bassett Furniture
Considering the 90-day investment horizon Ethan Allen is expected to generate 1.82 times less return on investment than Bassett Furniture. In addition to that, Ethan Allen is 1.1 times more volatile than Bassett Furniture Industries. It trades about 0.06 of its total potential returns per unit of risk. Bassett Furniture Industries is currently generating about 0.12 per unit of volatility. If you would invest 1,402 in Bassett Furniture Industries on August 24, 2024 and sell it today you would earn a total of 57.00 from holding Bassett Furniture Industries or generate 4.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ethan Allen Interiors vs. Bassett Furniture Industries
Performance |
| Timeline |
| Ethan Allen Interiors |
| Bassett Furniture |
Ethan Allen and Bassett Furniture Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ethan Allen and Bassett Furniture
The main advantage of trading using opposite Ethan Allen and Bassett Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethan Allen position performs unexpectedly, Bassett 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 Bassett Furniture will offset losses from the drop in Bassett Furniture's long position.The idea behind Ethan Allen Interiors and Bassett Furniture Industries 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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