Correlation Between Boston Beer and Hooker Furniture

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

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

Diversification Opportunities for Boston Beer and Hooker Furniture

0.33

Correlation Coefficient

Boston Beer  Hooker Furniture

Weak diversification

The 3 months correlation between Boston and Hooker is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Hooker Furniture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hooker Furniture and Boston Beer 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 Boston Beer are associated (or correlated) with Hooker Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hooker Furniture has no effect on the direction of Boston Beer i.e., Boston Beer and Hooker Furniture go up and down completely randomly.

Pair Corralation between Boston Beer and Hooker Furniture

Considering the 90-day investment horizon Boston Beer is expected to generate 0.8 times more return on investment than Hooker Furniture. However, Boston Beer is 1.25 times less risky than Hooker Furniture. It trades about -0.01 of its potential returns per unit of risk. Hooker Furniture is currently generating about -0.05 per unit of risk. If you would invest  35,054  in Boston Beer on September 20, 2024 and sell it today you would lose (4,577) from holding Boston Beer or give up 13.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Boston Beer  vs.  Hooker Furniture

Boston Beer

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hooker Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hooker Furniture has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Boston Beer and Hooker Furniture

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

The idea behind Boston Beer and Hooker Furniture 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.