Correlation Between RH and Purple Innovation

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

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

Diversification Opportunities for RH and Purple Innovation

0.36

Correlation Coefficient

RH  Purple Innovation

Weak diversification

The 3 months correlation between RH and Purple is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding RH and Purple Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purple Innovation and RH 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 RH are associated (or correlated) with Purple Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purple Innovation has no effect on the direction of RH i.e., RH and Purple Innovation go up and down completely randomly.

Pair Corralation between RH and Purple Innovation

Allowing for the 90-day total investment horizon RH is expected to under-perform the Purple Innovation. But the stock apears to be less risky and, when comparing its historical volatility, RH is 1.19 times less risky than Purple Innovation. The stock trades about -0.06 of its potential returns per unit of risk. The Purple Innovation is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  98.00  in Purple Innovation on December 1, 2024 and sell it today you would lose (13.00) from holding Purple Innovation or give up 13.27% of portfolio value over 90 days.

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

RH  vs.  Purple Innovation

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.

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 latest weak 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.

Pair Trading with RH and Purple Innovation

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

The idea behind RH and Purple Innovation 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.