Correlation Between Purple Innovation and RH

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

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

Diversification Opportunities for Purple Innovation and RH

0.62

Correlation Coefficient

Purple Innovation  RH

Poor diversification

The 3 months correlation between Purple and RH is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH 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 RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of Purple Innovation i.e., Purple Innovation and RH go up and down completely randomly.

Pair Corralation between Purple Innovation and RH

Given the investment horizon of 90 days Purple Innovation is expected to generate 1.88 times more return on investment than RH. However, Purple Innovation is 1.88 times more volatile than RH. It trades about 0.0 of its potential returns per unit of risk. RH is currently generating about -0.2 per unit of risk. If you would invest  89.00  in Purple Innovation on December 26, 2024 and sell it today you would lose (10.00) from holding Purple Innovation or give up 11.24% of portfolio value over 90 days.

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

Purple Innovation  vs.  RH

Purple Innovation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Purple Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Purple Innovation is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

RH

Risk-Adjusted Performance

Very Weak

Over the last 90 days RH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Purple Innovation and RH

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

The idea behind Purple Innovation and RH 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.