Correlation Between Natuzzi SpA and Bassett Furniture

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

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

Diversification Opportunities for Natuzzi SpA and Bassett Furniture

0.55

Correlation Coefficient

Natuzzi SpA  Bassett Furniture

Very weak diversification

The @@bw1eo months correlation between Natuzzi and Bassett is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Natuzzi SpA and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and Natuzzi SpA 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 Natuzzi SpA are associated (or correlated) with Bassett Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bassett Furniture has no effect on the direction of Natuzzi SpA i.e., Natuzzi SpA and Bassett Furniture go up and down completely randomly.

Pair Corralation between Natuzzi SpA and Bassett Furniture

Considering the 90-day investment horizon Natuzzi SpA is expected to generate 1.49 times more return on investment than Bassett Furniture. However, Natuzzi SpA is 1.49 times more volatile than Bassett Furniture Industries. It trades about 0.02 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about 0.02 per unit of risk. If you would invest  572.00  in Natuzzi SpA on February 3, 2024 and sell it today you would earn a total of  18.00  from holding Natuzzi SpA or generate 3.15% return on investment over 90 days.

Time Period	@@bw1EO Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

Natuzzi SpA  vs.  Bassett Furniture Industries

Natuzzi SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Natuzzi SpA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

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 comparatively stable technical and fundamental indicators, Bassett Furniture is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Natuzzi SpA and Bassett Furniture

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

The idea behind Natuzzi SpA and Bassett Furniture 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.