Correlation Between Flexsteel Industries and Purple Innovation

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

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

Diversification Opportunities for Flexsteel Industries and Purple Innovation

-0.66

Correlation Coefficient

Flexsteel Industries  Purple Innovation

Excellent diversification

The 3 months correlation between Flexsteel and Purple is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Flexsteel Industries and Purple Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purple Innovation 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 Purple Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purple Innovation has no effect on the direction of Flexsteel Industries i.e., Flexsteel Industries and Purple Innovation go up and down completely randomly.

Pair Corralation between Flexsteel Industries and Purple Innovation

Given the investment horizon of 90 days Flexsteel Industries is expected to generate 5.06 times less return on investment than Purple Innovation. But when comparing it to its historical volatility, Flexsteel Industries is 1.94 times less risky than Purple Innovation. It trades about 0.04 of its potential returns per unit of risk. Purple Innovation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  89.00  in Purple Innovation on September 1, 2024 and sell it today you would earn a total of  7.00  from holding Purple Innovation or generate 7.87% return on investment over 90 days.

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

Flexsteel Industries  vs.  Purple Innovation

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.

Purple Innovation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Purple Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Flexsteel Industries and Purple Innovation

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

The idea behind Flexsteel Industries and Purple Innovation 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.