Correlation Between Bassett Furniture and IRobot

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

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

Diversification Opportunities for Bassett Furniture and IRobot

0.79

Correlation Coefficient

Bassett Furniture  IRobot

Poor diversification

The 3 months correlation between Bassett and IRobot is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries and iRobot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iRobot and Bassett Furniture 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 Bassett Furniture Industries are associated (or correlated) with IRobot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iRobot has no effect on the direction of Bassett Furniture i.e., Bassett Furniture and IRobot go up and down completely randomly.

Pair Corralation between Bassett Furniture and IRobot

Given the investment horizon of 90 days Bassett Furniture Industries is expected to generate 0.32 times more return on investment than IRobot. However, Bassett Furniture Industries is 3.17 times less risky than IRobot. It trades about -0.14 of its potential returns per unit of risk. iRobot is currently generating about -0.05 per unit of risk. If you would invest  1,550  in Bassett Furniture Industries on February 3, 2024 and sell it today you would lose (168.00) from holding Bassett Furniture Industries or give up 10.84% of portfolio value over 90 days.

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

Bassett Furniture Industries  vs.  iRobot

Bassett Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bassett Furniture Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

iRobot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iRobot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Bassett Furniture and IRobot

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

The idea behind Bassett Furniture Industries and iRobot 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.