Correlation Between Purple Innovation and La Z

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

By analyzing existing cross correlation between Purple Innovation and La Z Boy Incorporated, you can compare the effects of market volatilities on Purple Innovation and La Z 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 La Z. Check out your portfolio center. Please also check ongoing floating volatility patterns of Purple Innovation and La Z.

Diversification Opportunities for Purple Innovation and La Z

0.01

Correlation Coefficient

Purple Innovation  La Z

Significant diversification

The 3 months correlation between Purple and LZB is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and La Z Boy Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on La Z Boy 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 La Z. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of La Z Boy has no effect on the direction of Purple Innovation i.e., Purple Innovation and La Z go up and down completely randomly.

Pair Corralation between Purple Innovation and La Z

Given the investment horizon of 90 days Purple Innovation is expected to generate 1.86 times less return on investment than La Z. In addition to that, Purple Innovation is 2.74 times more volatile than La Z Boy Incorporated. It trades about 0.1 of its total potential returns per unit of risk. La Z Boy Incorporated is currently generating about 0.53 per unit of volatility. If you would invest  3,805  in La Z Boy Incorporated on September 1, 2024 and sell it today you would earn a total of  722.00  from holding La Z Boy Incorporated or generate 18.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Purple Innovation  vs.  La Z Boy Incorporated

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.

La Z Boy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in La Z Boy Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, La Z may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Purple Innovation and La Z

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

The idea behind Purple Innovation and La Z Boy Incorporated 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.