Correlation Between Leggett Platt and Sleep Number

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

By analyzing existing cross correlation between Leggett Platt Incorporated and Sleep Number Corp, you can compare the effects of market volatilities on Leggett Platt and Sleep Number 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 Leggett Platt with a short position of Sleep Number. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leggett Platt and Sleep Number.

Diversification Opportunities for Leggett Platt and Sleep Number

0.78

Correlation Coefficient

Leggett Platt  Sleep Number

Poor diversification

The 3 months correlation between Leggett and Sleep is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Leggett Platt Incorporated and Sleep Number Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sleep Number Corp and Leggett Platt 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 Leggett Platt Incorporated are associated (or correlated) with Sleep Number. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sleep Number Corp has no effect on the direction of Leggett Platt i.e., Leggett Platt and Sleep Number go up and down completely randomly.

Pair Corralation between Leggett Platt and Sleep Number

Considering the 90-day investment horizon Leggett Platt is expected to generate 2.66 times less return on investment than Sleep Number. But when comparing it to its historical volatility, Leggett Platt Incorporated is 2.1 times less risky than Sleep Number. It trades about 0.05 of its potential returns per unit of risk. Sleep Number Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,423  in Sleep Number Corp on September 5, 2024 and sell it today you would earn a total of  222.00  from holding Sleep Number Corp or generate 15.6% return on investment over 90 days.

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

Leggett Platt Incorporated  vs.  Sleep Number Corp

Leggett Platt

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Leggett Platt Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, Leggett Platt may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sleep Number Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sleep Number Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, Sleep Number reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leggett Platt and Sleep Number

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

The idea behind Leggett Platt Incorporated and Sleep Number Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.