Correlation Between Destination and Sleep Number

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

By analyzing existing cross correlation between Destination XL Group and Sleep Number Corp, you can compare the effects of market volatilities on Destination 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 Destination with a short position of Sleep Number. Check out your portfolio center. Please also check ongoing floating volatility patterns of Destination and Sleep Number.

Diversification Opportunities for Destination and Sleep Number

-0.2

Correlation Coefficient

Destination  Sleep Number

Good diversification

The 3 months correlation between Destination and Sleep is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Destination XL Group 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 Destination 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 Destination XL Group 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 Destination i.e., Destination and Sleep Number go up and down completely randomly.

Pair Corralation between Destination and Sleep Number

Given the investment horizon of 90 days Destination XL Group is expected to generate 2.41 times more return on investment than Sleep Number. However, Destination is 2.41 times more volatile than Sleep Number Corp. It trades about 0.03 of its potential returns per unit of risk. Sleep Number Corp is currently generating about -0.56 per unit of risk. If you would invest  259.00  in Destination XL Group on October 11, 2024 and sell it today you would earn a total of  3.00  from holding Destination XL Group or generate 1.16% return on investment over 90 days.

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

Destination XL Group  vs.  Sleep Number Corp

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destination XL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Destination is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Sleep Number Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sleep Number Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, Sleep Number may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Destination and Sleep Number

The main advantage of trading using opposite Destination and Sleep Number positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Destination 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 Destination XL Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.