Correlation Between Sleep Number and Purple Innovation
Can any of the company-specific risk be diversified away by investing in both Sleep Number and Purple Innovation 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 Sleep Number and Purple Innovation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sleep Number Corp and Purple Innovation, you can compare the effects of market volatilities on Sleep Number and Purple Innovation 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 Sleep Number with a short position of Purple Innovation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sleep Number and Purple Innovation.
Diversification Opportunities for Sleep Number and Purple Innovation
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Sleep and Purple is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Sleep Number Corp and Purple Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purple Innovation and Sleep Number 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 Sleep Number Corp are associated (or correlated) with Purple Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purple Innovation has no effect on the direction of Sleep Number i.e., Sleep Number and Purple Innovation go up and down completely randomly.
Pair Corralation between Sleep Number and Purple Innovation
Given the investment horizon of 90 days Sleep Number Corp is expected to under-perform the Purple Innovation. But the stock apears to be less risky and, when comparing its historical volatility, Sleep Number Corp is 1.32 times less risky than Purple Innovation. The stock trades about -0.02 of its potential returns per unit of risk. The Purple Innovation is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 88.00 in Purple Innovation on October 20, 2024 and sell it today you would earn a total of 7.00 from holding Purple Innovation or generate 7.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sleep Number Corp vs. Purple Innovation
Performance |
| Timeline |
| Sleep Number Corp |
| Purple Innovation |
Sleep Number and Purple Innovation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sleep Number and Purple Innovation
The main advantage of trading using opposite Sleep Number and Purple Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sleep Number position performs unexpectedly, Purple Innovation 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 Purple Innovation will offset losses from the drop in Purple Innovation's long position.| Sleep Number vs. Purple Innovation | Sleep Number vs. Mohawk Industries | Sleep Number vs. La Z Boy Incorporated | Sleep Number vs. Leggett Platt Incorporated |
| Purple Innovation vs. Tempur Sealy International | Purple Innovation vs. La Z Boy Incorporated | Purple Innovation vs. MasterBrand | Purple Innovation vs. Ethan Allen Interiors |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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