Correlation Between FirsTime Design and Lovesac

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

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

Diversification Opportunities for FirsTime Design and Lovesac

-0.52

Correlation Coefficient

FirsTime Design  Lovesac

Excellent diversification

The 3 months correlation between FirsTime and Lovesac is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding FirsTime Design and The Lovesac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lovesac and FirsTime Design 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 FirsTime Design 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 FirsTime Design i.e., FirsTime Design and Lovesac go up and down completely randomly.

Pair Corralation between FirsTime Design and Lovesac

Given the investment horizon of 90 days FirsTime Design is expected to under-perform the Lovesac. In addition to that, FirsTime Design is 2.17 times more volatile than The Lovesac. It trades about -0.13 of its total potential returns per unit of risk. The Lovesac is currently generating about 0.02 per unit of volatility. If you would invest  2,635  in The Lovesac on September 14, 2024 and sell it today you would lose (61.00) from holding The Lovesac or give up 2.31% of portfolio value over 90 days.

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

FirsTime Design  vs.  The Lovesac

FirsTime Design

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirsTime Design has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Lovesac

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Lovesac are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lovesac may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FirsTime Design and Lovesac

The main advantage of trading using opposite FirsTime Design and Lovesac positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FirsTime Design 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 FirsTime Design 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.