Correlation Between Purple Innovation and Mohawk Industries

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

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

Diversification Opportunities for Purple Innovation and Mohawk Industries

0.46

Correlation Coefficient

Purple Innovation  Mohawk Industries

Very weak diversification

The 3 months correlation between Purple and Mohawk is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and Mohawk Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mohawk Industries 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 Mohawk Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mohawk Industries has no effect on the direction of Purple Innovation i.e., Purple Innovation and Mohawk Industries go up and down completely randomly.

Pair Corralation between Purple Innovation and Mohawk Industries

Given the investment horizon of 90 days Purple Innovation is expected to generate 2.08 times more return on investment than Mohawk Industries. However, Purple Innovation is 2.08 times more volatile than Mohawk Industries. It trades about 0.1 of its potential returns per unit of risk. Mohawk Industries is currently generating about 0.09 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Purple Innovation  vs.  Mohawk Industries

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.

Mohawk Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mohawk Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical 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 Purple Innovation and Mohawk Industries

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

The idea behind Purple Innovation and Mohawk Industries 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.