Correlation Between Purple Innovation and Lovesac

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

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

Diversification Opportunities for Purple Innovation and Lovesac

-0.57

Correlation Coefficient

Purple Innovation  Lovesac

Excellent diversification

The 3 months correlation between Purple and Lovesac is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and The Lovesac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lovesac and Purple Innovation 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 Purple Innovation 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 Purple Innovation i.e., Purple Innovation and Lovesac go up and down completely randomly.

Pair Corralation between Purple Innovation and Lovesac

Given the investment horizon of 90 days Purple Innovation is expected to generate 2.84 times less return on investment than Lovesac. In addition to that, Purple Innovation is 1.26 times more volatile than The Lovesac. It trades about 0.1 of its total potential returns per unit of risk. The Lovesac is currently generating about 0.37 per unit of volatility. 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Purple Innovation  vs.  The Lovesac

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.

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.

Pair Trading with Purple Innovation and Lovesac

The main advantage of trading using opposite Purple Innovation and Lovesac positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Purple Innovation 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 Purple Innovation 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.