Correlation Between Bassett Furniture and First Business

Can any of the company-specific risk be diversified away by investing in both Bassett Furniture and First Business 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 First Business 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 First Business Financial, you can compare the effects of market volatilities on Bassett Furniture and First Business 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 First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bassett Furniture and First Business.

Diversification Opportunities for Bassett Furniture and First Business

0.72

Correlation Coefficient

Bassett Furniture  First Business

Poor diversification

The 3 months correlation between Bassett and First is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business Financial 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 First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of Bassett Furniture i.e., Bassett Furniture and First Business go up and down completely randomly.

Pair Corralation between Bassett Furniture and First Business

Given the investment horizon of 90 days Bassett Furniture is expected to generate 1.59 times less return on investment than First Business. But when comparing it to its historical volatility, Bassett Furniture Industries is 1.39 times less risky than First Business. It trades about 0.09 of its potential returns per unit of risk. First Business Financial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,239  in First Business Financial on September 12, 2024 and sell it today you would earn a total of  672.00  from holding First Business Financial or generate 15.85% return on investment over 90 days.

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

Bassett Furniture Industries  vs.  First Business Financial

Bassett Furniture

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Bassett Furniture may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Business Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward indicators, First Business showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bassett Furniture and First Business

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

The idea behind Bassett Furniture Industries and First Business Financial 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.