Correlation Between MasterBrand and Purple Innovation

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

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

Diversification Opportunities for MasterBrand and Purple Innovation

-0.35

Correlation Coefficient

MasterBrand  Purple Innovation

Very good diversification

The 3 months correlation between MasterBrand and Purple is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding MasterBrand and Purple Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purple Innovation and MasterBrand 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 MasterBrand 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 MasterBrand i.e., MasterBrand and Purple Innovation go up and down completely randomly.

Pair Corralation between MasterBrand and Purple Innovation

Considering the 90-day investment horizon MasterBrand is expected to under-perform the Purple Innovation. But the stock apears to be less risky and, when comparing its historical volatility, MasterBrand is 1.89 times less risky than Purple Innovation. The stock trades about -0.07 of its potential returns per unit of risk. The 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

MasterBrand  vs.  Purple Innovation

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.

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 MasterBrand and Purple Innovation

The main advantage of trading using opposite MasterBrand and Purple Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MasterBrand 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 MasterBrand 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.