Correlation Between Purple Innovation and MasterBrand

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

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

Diversification Opportunities for Purple Innovation and MasterBrand

-0.35

Correlation Coefficient

Purple Innovation  MasterBrand

Very good diversification

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

Pair Corralation between Purple Innovation and MasterBrand

Given the investment horizon of 90 days Purple Innovation is expected to generate 1.89 times more return on investment than MasterBrand. However, Purple Innovation is 1.89 times more volatile than MasterBrand. It trades about 0.1 of its potential returns per unit of risk. MasterBrand is currently generating about -0.07 per unit of risk. 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

Purple Innovation  vs.  MasterBrand

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.

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 Purple Innovation and MasterBrand

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

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.