Correlation Between Lovesac and MasterBrand

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

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

Diversification Opportunities for Lovesac and MasterBrand

0.34

Correlation Coefficient

Lovesac  MasterBrand

Weak diversification

The 3 months correlation between Lovesac and MasterBrand is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding The Lovesac and MasterBrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MasterBrand and Lovesac 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 The Lovesac are associated (or correlated) with MasterBrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MasterBrand has no effect on the direction of Lovesac i.e., Lovesac and MasterBrand go up and down completely randomly.

Pair Corralation between Lovesac and MasterBrand

Given the investment horizon of 90 days The Lovesac is expected to generate 1.5 times more return on investment than MasterBrand. However, Lovesac is 1.5 times more volatile than MasterBrand. It trades about 0.37 of its potential returns per unit of risk. MasterBrand is currently generating about -0.07 per unit of risk. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

The Lovesac  vs.  MasterBrand

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.

MasterBrand

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MasterBrand are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, MasterBrand may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Lovesac and MasterBrand

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

The idea behind The Lovesac and MasterBrand 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.