Correlation Between Flexsteel Industries and Lovesac

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

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

Diversification Opportunities for Flexsteel Industries and Lovesac

0.81

Correlation Coefficient

Flexsteel Industries  Lovesac

Very poor diversification

The 3 months correlation between Flexsteel and Lovesac is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Flexsteel Industries and The Lovesac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lovesac and Flexsteel Industries 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 Flexsteel Industries are associated (or correlated) with Lovesac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lovesac has no effect on the direction of Flexsteel Industries i.e., Flexsteel Industries and Lovesac go up and down completely randomly.

Pair Corralation between Flexsteel Industries and Lovesac

Given the investment horizon of 90 days Flexsteel Industries is expected to generate 14.38 times less return on investment than Lovesac. But when comparing it to its historical volatility, Flexsteel Industries is 1.54 times less risky than Lovesac. It trades about 0.04 of its potential returns per unit of risk. The Lovesac is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  2,916  in The Lovesac on September 1, 2024 and sell it today you would earn a total of  856.00  from holding The Lovesac or generate 29.36% return on investment over 90 days.

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

Flexsteel Industries  vs.  The Lovesac

Flexsteel Industries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flexsteel Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flexsteel Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lovesac

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Lovesac are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lovesac exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flexsteel Industries and Lovesac

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

The idea behind Flexsteel Industries and The Lovesac 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.