Correlation Between Bassett Furniture and Fortescue

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

Diversification Opportunities for Bassett Furniture and Fortescue

-0.21

Correlation Coefficient

Bassett Furniture  Fortescue

Very good diversification

The 3 months correlation between Bassett and Fortescue is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals 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 Fortescue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Bassett Furniture i.e., Bassett Furniture and Fortescue go up and down completely randomly.

Pair Corralation between Bassett Furniture and Fortescue

Given the investment horizon of 90 days Bassett Furniture Industries is expected to generate 2.34 times more return on investment than Fortescue. However, Bassett Furniture is 2.34 times more volatile than Fortescue Metals Group. It trades about 0.02 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about 0.01 per unit of risk. If you would invest  1,373  in Bassett Furniture Industries on September 13, 2024 and sell it today you would earn a total of  52.00  from holding Bassett Furniture Industries or generate 3.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.93%
Values	Daily Returns

Bassett Furniture Industries  vs.  Fortescue Metals Group

Bassett Furniture

Risk-Adjusted Performance

3 of 100

Very Weak

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fortescue is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bassett Furniture and Fortescue

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

The idea behind Bassett Furniture Industries and Fortescue Metals Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.