Correlation Between Ethan Allen and Bassett Furniture

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

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

Diversification Opportunities for Ethan Allen and Bassett Furniture

-0.29

Correlation Coefficient

Ethan Allen  Bassett Furniture

Very good diversification

The 3 months correlation between Ethan and Bassett is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ethan Allen Interiors and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and Ethan Allen 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 Ethan Allen Interiors 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 Ethan Allen i.e., Ethan Allen and Bassett Furniture go up and down completely randomly.

Pair Corralation between Ethan Allen and Bassett Furniture

Considering the 90-day investment horizon Ethan Allen is expected to generate 8.45 times less return on investment than Bassett Furniture. But when comparing it to its historical volatility, Ethan Allen Interiors is 1.01 times less risky than Bassett Furniture. It trades about 0.01 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,366  in Bassett Furniture Industries on December 29, 2024 and sell it today you would earn a total of  209.00  from holding Bassett Furniture Industries or generate 15.3% return on investment over 90 days.

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

Ethan Allen Interiors  vs.  Bassett Furniture Industries

Ethan Allen Interiors

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ethan Allen Interiors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Ethan Allen is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bassett Furniture

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Bassett Furniture unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethan Allen and Bassett Furniture

The main advantage of trading using opposite Ethan Allen and Bassett Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethan Allen 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 Ethan Allen Interiors 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..