Correlation Between Flexsteel Industries and Sleep Number

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

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

Diversification Opportunities for Flexsteel Industries and Sleep Number

-0.55

Correlation Coefficient

Flexsteel Industries  Sleep Number

Excellent diversification

The 3 months correlation between Flexsteel and Sleep is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Flexsteel Industries 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 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 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 Flexsteel Industries i.e., Flexsteel Industries and Sleep Number go up and down completely randomly.

Pair Corralation between Flexsteel Industries and Sleep Number

Given the investment horizon of 90 days Flexsteel Industries is expected to generate 0.73 times more return on investment than Sleep Number. However, Flexsteel Industries is 1.37 times less risky than Sleep Number. It trades about 0.09 of its potential returns per unit of risk. Sleep Number Corp is currently generating about 0.02 per unit of risk. If you would invest  3,550  in Flexsteel Industries on September 1, 2024 and sell it today you would earn a total of  2,353  from holding Flexsteel Industries or generate 66.28% return on investment over 90 days.

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

Flexsteel Industries  vs.  Sleep Number Corp

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.

Sleep Number Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sleep Number Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, Sleep Number reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flexsteel Industries and Sleep Number

The main advantage of trading using opposite Flexsteel Industries and Sleep Number positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flexsteel Industries 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 Flexsteel Industries 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.