Correlation Between American Coastal and Hooker Furniture

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

By analyzing existing cross correlation between American Coastal Insurance and Hooker Furniture, you can compare the effects of market volatilities on American Coastal and Hooker 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 American Coastal with a short position of Hooker Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Coastal and Hooker Furniture.

Diversification Opportunities for American Coastal and Hooker Furniture

0.65

Correlation Coefficient

American Coastal  Hooker Furniture

Poor diversification

The 3 months correlation between American and Hooker is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding American Coastal Insurance and Hooker Furniture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hooker Furniture and American Coastal 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 American Coastal Insurance are associated (or correlated) with Hooker Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hooker Furniture has no effect on the direction of American Coastal i.e., American Coastal and Hooker Furniture go up and down completely randomly.

Pair Corralation between American Coastal and Hooker Furniture

Given the investment horizon of 90 days American Coastal Insurance is expected to generate 2.97 times more return on investment than Hooker Furniture. However, American Coastal is 2.97 times more volatile than Hooker Furniture. It trades about 0.12 of its potential returns per unit of risk. Hooker Furniture is currently generating about 0.03 per unit of risk. If you would invest  48.00  in American Coastal Insurance on September 3, 2024 and sell it today you would earn a total of  1,325  from holding American Coastal Insurance or generate 2760.42% return on investment over 90 days.

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

American Coastal Insurance  vs.  Hooker Furniture

American Coastal Ins

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Coastal Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, American Coastal exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hooker Furniture

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hooker Furniture are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Hooker Furniture unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Coastal and Hooker Furniture

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

The idea behind American Coastal Insurance and Hooker Furniture 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.