Correlation Between Virco Manufacturing and Luvu Brands

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

By analyzing existing cross correlation between Virco Manufacturing and Luvu Brands, you can compare the effects of market volatilities on Virco Manufacturing and Luvu Brands 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 Virco Manufacturing with a short position of Luvu Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virco Manufacturing and Luvu Brands.

Diversification Opportunities for Virco Manufacturing and Luvu Brands

-0.56

Correlation Coefficient

Virco Manufacturing  Luvu Brands

Excellent diversification

The 3 months correlation between Virco and Luvu is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Virco Manufacturing and Luvu Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luvu Brands and Virco Manufacturing 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 Virco Manufacturing are associated (or correlated) with Luvu Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luvu Brands has no effect on the direction of Virco Manufacturing i.e., Virco Manufacturing and Luvu Brands go up and down completely randomly.

Pair Corralation between Virco Manufacturing and Luvu Brands

Given the investment horizon of 90 days Virco Manufacturing is expected to under-perform the Luvu Brands. But the stock apears to be less risky and, when comparing its historical volatility, Virco Manufacturing is 2.33 times less risky than Luvu Brands. The stock trades about -0.06 of its potential returns per unit of risk. The Luvu Brands is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Luvu Brands on September 12, 2024 and sell it today you would lose (1.00) from holding Luvu Brands or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Virco Manufacturing  vs.  Luvu Brands

Virco Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virco Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Luvu Brands

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Luvu Brands are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Luvu Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Virco Manufacturing and Luvu Brands

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

The idea behind Virco Manufacturing and Luvu Brands 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.