Correlation Between Purple Innovation and Ethan Allen

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

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

Diversification Opportunities for Purple Innovation and Ethan Allen

0.61

Correlation Coefficient

Purple Innovation  Ethan Allen

Poor diversification

The 3 months correlation between Purple and Ethan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and Ethan Allen Interiors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethan Allen Interiors 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 Ethan Allen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethan Allen Interiors has no effect on the direction of Purple Innovation i.e., Purple Innovation and Ethan Allen go up and down completely randomly.

Pair Corralation between Purple Innovation and Ethan Allen

Given the investment horizon of 90 days Purple Innovation is expected to under-perform the Ethan Allen. In addition to that, Purple Innovation is 1.23 times more volatile than Ethan Allen Interiors. It trades about -0.19 of its total potential returns per unit of risk. Ethan Allen Interiors is currently generating about -0.16 per unit of volatility. If you would invest  3,307  in Ethan Allen Interiors on February 5, 2024 and sell it today you would lose (401.00) from holding Ethan Allen Interiors or give up 12.13% 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.  Ethan Allen Interiors

Purple Innovation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Purple Innovation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Purple Innovation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Ethan Allen Interiors

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Ethan Allen Interiors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Ethan Allen is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Purple Innovation and Ethan Allen

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

The idea behind Purple Innovation and Ethan Allen Interiors 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.