Correlation Between Nike and Bassett Furniture
Can any of the company-specific risk be diversified away by investing in both Nike 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 Nike and Bassett Furniture into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and Bassett Furniture Industries, you can compare the effects of market volatilities on Nike 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 Nike with a short position of Bassett Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and Bassett Furniture.
Diversification Opportunities for Nike and Bassett Furniture
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Nike and Bassett is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and Nike 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 Nike Inc 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 Nike i.e., Nike and Bassett Furniture go up and down completely randomly.
Pair Corralation between Nike and Bassett Furniture
Considering the 90-day investment horizon Nike is expected to generate 1.37 times less return on investment than Bassett Furniture. But when comparing it to its historical volatility, Nike Inc is 1.02 times less risky than Bassett Furniture. It trades about 0.07 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,480 in Bassett Furniture Industries on September 3, 2024 and sell it today you would earn a total of 43.00 from holding Bassett Furniture Industries or generate 2.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nike Inc vs. Bassett Furniture Industries
Performance |
| Timeline |
| Nike Inc |
| Bassett Furniture |
Nike and Bassett Furniture Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nike and Bassett Furniture
The main advantage of trading using opposite Nike and Bassett Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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.| Bassett Furniture vs. Hooker Furniture | Bassett Furniture vs. Flexsteel Industries | Bassett Furniture vs. Haverty Furniture Companies | Bassett Furniture vs. La Z Boy Incorporated |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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