Correlation Between Bath Body and Target

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

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

Diversification Opportunities for Bath Body and Target

-0.39

Correlation Coefficient

Bath Body  Target

Very good diversification

The 3 months correlation between Bath and Target is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Bath Body Works and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Bath Body 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 Bath Body Works are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Bath Body i.e., Bath Body and Target go up and down completely randomly.

Pair Corralation between Bath Body and Target

Given the investment horizon of 90 days Bath Body Works is expected to generate 1.23 times more return on investment than Target. However, Bath Body is 1.23 times more volatile than Target. It trades about 0.01 of its potential returns per unit of risk. Target is currently generating about 0.0 per unit of risk. If you would invest  4,045  in Bath Body Works on September 4, 2024 and sell it today you would lose (356.00) from holding Bath Body Works or give up 8.8% of portfolio value over 90 days.

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

Bath Body Works  vs.  Target

Bath Body Works

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Bath Body demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Bath Body and Target

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

The idea behind Bath Body Works and Target 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.