Correlation Between Willis Lease and Bassett Furniture

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

By analyzing existing cross correlation between Willis Lease Finance and Bassett Furniture Industries, you can compare the effects of market volatilities on Willis Lease and Bassett Furniture 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 Willis Lease with a short position of Bassett Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willis Lease and Bassett Furniture.

Diversification Opportunities for Willis Lease and Bassett Furniture

0.61

Correlation Coefficient

Willis Lease  Bassett Furniture

Poor diversification

The 3 months correlation between Willis and Bassett is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Willis Lease Finance and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and Willis Lease 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 Willis Lease Finance are associated (or correlated) with Bassett Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bassett Furniture has no effect on the direction of Willis Lease i.e., Willis Lease and Bassett Furniture go up and down completely randomly.

Pair Corralation between Willis Lease and Bassett Furniture

Given the investment horizon of 90 days Willis Lease Finance is expected to generate 2.29 times more return on investment than Bassett Furniture. However, Willis Lease is 2.29 times more volatile than Bassett Furniture Industries. It trades about 0.3 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about 0.1 per unit of risk. If you would invest  10,218  in Willis Lease Finance on September 2, 2024 and sell it today you would earn a total of  11,589  from holding Willis Lease Finance or generate 113.42% return on investment over 90 days.

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

Willis Lease Finance  vs.  Bassett Furniture Industries

Willis Lease Finance

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Willis Lease Finance are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Willis Lease exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bassett Furniture

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Bassett Furniture may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Willis Lease and Bassett Furniture

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

The idea behind Willis Lease Finance and Bassett Furniture 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..