Correlation Between Sleep Number and Flexsteel Industries

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

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

Diversification Opportunities for Sleep Number and Flexsteel Industries

-0.33

Correlation Coefficient

Sleep Number  Flexsteel Industries

Very good diversification

The 3 months correlation between Sleep and Flexsteel is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Sleep Number Corp and Flexsteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexsteel Industries and Sleep Number 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 Sleep Number Corp are associated (or correlated) with Flexsteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexsteel Industries has no effect on the direction of Sleep Number i.e., Sleep Number and Flexsteel Industries go up and down completely randomly.

Pair Corralation between Sleep Number and Flexsteel Industries

Given the investment horizon of 90 days Sleep Number is expected to generate 1.05 times less return on investment than Flexsteel Industries. In addition to that, Sleep Number is 1.43 times more volatile than Flexsteel Industries. It trades about 0.11 of its total potential returns per unit of risk. Flexsteel Industries is currently generating about 0.16 per unit of volatility. If you would invest  4,093  in Flexsteel Industries on September 12, 2024 and sell it today you would earn a total of  1,873  from holding Flexsteel Industries or generate 45.76% return on investment over 90 days.

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

Sleep Number Corp  vs.  Flexsteel Industries

Sleep Number Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sleep Number Corp are ranked lower than 8 (%) 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.

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.

Pair Trading with Sleep Number and Flexsteel Industries

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

The idea behind Sleep Number Corp and Flexsteel Industries 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.