Correlation Between Big 5 and Sally Beauty

Can any of the company-specific risk be diversified away by investing in both Big 5 and Sally Beauty 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 Big 5 and Sally Beauty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and Sally Beauty Holdings, you can compare the effects of market volatilities on Big 5 and Sally Beauty 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 Big 5 with a short position of Sally Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Sally Beauty.

Diversification Opportunities for Big 5 and Sally Beauty

0.86

Correlation Coefficient

Big 5  Sally Beauty

Very poor diversification

The 3 months correlation between Big and Sally is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Sally Beauty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sally Beauty Holdings and Big 5 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 Big 5 Sporting are associated (or correlated) with Sally Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sally Beauty Holdings has no effect on the direction of Big 5 i.e., Big 5 and Sally Beauty go up and down completely randomly.

Pair Corralation between Big 5 and Sally Beauty

Given the investment horizon of 90 days Big 5 Sporting is expected to under-perform the Sally Beauty. In addition to that, Big 5 is 1.02 times more volatile than Sally Beauty Holdings. It trades about -0.32 of its total potential returns per unit of risk. Sally Beauty Holdings is currently generating about -0.11 per unit of volatility. If you would invest  1,084  in Sally Beauty Holdings on December 27, 2024 and sell it today you would lose (199.00) from holding Sally Beauty Holdings or give up 18.36% of portfolio value over 90 days.

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

Big 5 Sporting  vs.  Sally Beauty Holdings

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Sally Beauty Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sally Beauty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Big 5 and Sally Beauty

The main advantage of trading using opposite Big 5 and Sally Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Sally Beauty 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 Sally Beauty will offset losses from the drop in Sally Beauty's long position.

The idea behind Big 5 Sporting and Sally Beauty Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.