Correlation Between Ethan Allen and Lovesac

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

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

Diversification Opportunities for Ethan Allen and Lovesac

-0.15

Correlation Coefficient

Ethan Allen  Lovesac

Good diversification

The 3 months correlation between Ethan and Lovesac is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ethan Allen Interiors and The Lovesac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lovesac and Ethan Allen 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 Ethan Allen Interiors are associated (or correlated) with Lovesac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lovesac has no effect on the direction of Ethan Allen i.e., Ethan Allen and Lovesac go up and down completely randomly.

Pair Corralation between Ethan Allen and Lovesac

Considering the 90-day investment horizon Ethan Allen is expected to generate 3.09 times less return on investment than Lovesac. But when comparing it to its historical volatility, Ethan Allen Interiors is 1.95 times less risky than Lovesac. It trades about 0.05 of its potential returns per unit of risk. The Lovesac is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,822  in The Lovesac on August 31, 2024 and sell it today you would earn a total of  992.00  from holding The Lovesac or generate 35.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Ethan Allen Interiors  vs.  The Lovesac

Ethan Allen Interiors

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ethan Allen Interiors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Ethan Allen is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Lovesac

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Lovesac are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lovesac exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ethan Allen and Lovesac

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

The idea behind Ethan Allen Interiors and The Lovesac 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.