Correlation Between Tempur Sealy and Ethan Allen

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

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

Diversification Opportunities for Tempur Sealy and Ethan Allen

0.61

Correlation Coefficient

Tempur Sealy  Ethan Allen

Poor diversification

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

Pair Corralation between Tempur Sealy and Ethan Allen

Considering the 90-day investment horizon Tempur Sealy International is expected to generate 0.5 times more return on investment than Ethan Allen. However, Tempur Sealy International is 1.99 times less risky than Ethan Allen. It trades about 0.19 of its potential returns per unit of risk. Ethan Allen Interiors is currently generating about -0.09 per unit of risk. If you would invest  4,901  in Tempur Sealy International on February 22, 2024 and sell it today you would earn a total of  354.00  from holding Tempur Sealy International or generate 7.22% return on investment over 90 days.

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

Tempur Sealy International  vs.  Ethan Allen Interiors

Tempur Sealy Interna

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tempur Sealy International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Tempur Sealy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Ethan Allen Interiors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ethan Allen Interiors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Ethan Allen is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tempur Sealy and Ethan Allen

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

The idea behind Tempur Sealy International and Ethan Allen Interiors 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.