Correlation Between Bassett Furniture and Patrick Industries

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

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

Diversification Opportunities for Bassett Furniture and Patrick Industries

0.04

Correlation Coefficient

Bassett Furniture  Patrick Industries

Significant diversification

The 3 months correlation between Bassett and Patrick is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries and Patrick Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patrick Industries and Bassett Furniture 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 Bassett Furniture Industries are associated (or correlated) with Patrick Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patrick Industries has no effect on the direction of Bassett Furniture i.e., Bassett Furniture and Patrick Industries go up and down completely randomly.

Pair Corralation between Bassett Furniture and Patrick Industries

Given the investment horizon of 90 days Bassett Furniture Industries is expected to generate 0.73 times more return on investment than Patrick Industries. However, Bassett Furniture Industries is 1.37 times less risky than Patrick Industries. It trades about 0.1 of its potential returns per unit of risk. Patrick Industries is currently generating about 0.05 per unit of risk. If you would invest  1,375  in Bassett Furniture Industries on September 3, 2024 and sell it today you would earn a total of  162.00  from holding Bassett Furniture Industries or generate 11.78% return on investment over 90 days.

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

Bassett Furniture Industries  vs.  Patrick Industries

Bassett Furniture

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Bassett Furniture may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Patrick Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Patrick Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Patrick Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bassett Furniture and Patrick Industries

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

The idea behind Bassett Furniture Industries and Patrick 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.