Correlation Between Ethan Allen and Virco Manufacturing

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

Diversification Opportunities for Ethan Allen and Virco Manufacturing

0.56

Correlation Coefficient

Ethan Allen  Virco Manufacturing

Very weak diversification

The 3 months correlation between Ethan and Virco is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Ethan Allen Interiors and Virco Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virco Manufacturing 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 Virco Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virco Manufacturing has no effect on the direction of Ethan Allen i.e., Ethan Allen and Virco Manufacturing go up and down completely randomly.

Pair Corralation between Ethan Allen and Virco Manufacturing

Considering the 90-day investment horizon Ethan Allen is expected to generate 4.26 times less return on investment than Virco Manufacturing. But when comparing it to its historical volatility, Ethan Allen Interiors is 2.16 times less risky than Virco Manufacturing. It trades about 0.03 of its potential returns per unit of risk. Virco Manufacturing is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  642.00  in Virco Manufacturing on October 21, 2024 and sell it today you would earn a total of  363.00  from holding Virco Manufacturing or generate 56.54% return on investment over 90 days.

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

Ethan Allen Interiors  vs.  Virco Manufacturing

Ethan Allen Interiors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ethan Allen Interiors has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Virco Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virco Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Ethan Allen and Virco Manufacturing

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

The idea behind Ethan Allen Interiors and Virco Manufacturing 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.