Correlation Between Black Hills and Bassett Furniture

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

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

Diversification Opportunities for Black Hills and Bassett Furniture

0.54

Correlation Coefficient

Black Hills  Bassett Furniture

Very weak diversification

The 3 months correlation between Black and Bassett is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and Black Hills 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 Black Hills 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 Black Hills i.e., Black Hills and Bassett Furniture go up and down completely randomly.

Pair Corralation between Black Hills and Bassett Furniture

Considering the 90-day investment horizon Black Hills is expected to generate 0.57 times more return on investment than Bassett Furniture. However, Black Hills is 1.75 times less risky than Bassett Furniture. It trades about 0.02 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about 0.01 per unit of risk. If you would invest  6,046  in Black Hills on September 14, 2024 and sell it today you would earn a total of  52.00  from holding Black Hills or generate 0.86% return on investment over 90 days.

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

Black Hills  vs.  Bassett Furniture Industries

Black Hills

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Bassett Furniture

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Bassett Furniture Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Bassett Furniture is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Black Hills and Bassett Furniture

The main advantage of trading using opposite Black Hills and Bassett Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Black Hills 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 Black Hills 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.