Correlation Between Flexsteel Industries and Tempur Sealy

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

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

Diversification Opportunities for Flexsteel Industries and Tempur Sealy

0.16

Correlation Coefficient

Flexsteel Industries  Tempur Sealy

Average diversification

The 3 months correlation between Flexsteel and Tempur is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Flexsteel Industries and Tempur Sealy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tempur Sealy Interna and Flexsteel Industries 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 Flexsteel Industries are associated (or correlated) with Tempur Sealy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tempur Sealy Interna has no effect on the direction of Flexsteel Industries i.e., Flexsteel Industries and Tempur Sealy go up and down completely randomly.

Pair Corralation between Flexsteel Industries and Tempur Sealy

Given the investment horizon of 90 days Flexsteel Industries is expected to generate 2.25 times more return on investment than Tempur Sealy. However, Flexsteel Industries is 2.25 times more volatile than Tempur Sealy International. It trades about 0.16 of its potential returns per unit of risk. Tempur Sealy International is currently generating about 0.08 per unit of risk. If you would invest  3,991  in Flexsteel Industries on August 31, 2024 and sell it today you would earn a total of  1,926  from holding Flexsteel Industries or generate 48.26% return on investment over 90 days.

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

Flexsteel Industries  vs.  Tempur Sealy International

Flexsteel Industries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flexsteel Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flexsteel Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tempur Sealy Interna

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tempur Sealy International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Tempur Sealy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Flexsteel Industries and Tempur Sealy

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

The idea behind Flexsteel Industries and Tempur Sealy International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.