Correlation Between Bassett Furniture and Sleep Number

Can any of the company-specific risk be diversified away by investing in both Bassett Furniture and Sleep Number 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 Sleep Number 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 Sleep Number Corp, you can compare the effects of market volatilities on Bassett Furniture and Sleep Number 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 Sleep Number. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bassett Furniture and Sleep Number.

Diversification Opportunities for Bassett Furniture and Sleep Number

-0.26

Correlation Coefficient

Bassett Furniture  Sleep Number

Very good diversification

The 3 months correlation between Bassett and Sleep is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries and Sleep Number Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sleep Number Corp 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 Sleep Number. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sleep Number Corp has no effect on the direction of Bassett Furniture i.e., Bassett Furniture and Sleep Number go up and down completely randomly.

Pair Corralation between Bassett Furniture and Sleep Number

Given the investment horizon of 90 days Bassett Furniture Industries is expected to generate 0.39 times more return on investment than Sleep Number. However, Bassett Furniture Industries is 2.54 times less risky than Sleep Number. It trades about 0.25 of its potential returns per unit of risk. Sleep Number Corp is currently generating about -0.21 per unit of risk. If you would invest  1,436  in Bassett Furniture Industries on December 2, 2024 and sell it today you would earn a total of  144.00  from holding Bassett Furniture Industries or generate 10.03% return on investment over 90 days.

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

Bassett Furniture Industries  vs.  Sleep Number Corp

Bassett Furniture

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Sleep Number Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sleep Number Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Sleep Number is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bassett Furniture and Sleep Number

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

The idea behind Bassett Furniture Industries and Sleep Number Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.