Correlation Between BJs Wholesale and Estee Lauder

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

By analyzing existing cross correlation between BJs Wholesale Club and Estee Lauder Companies, you can compare the effects of market volatilities on BJs Wholesale and Estee Lauder 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 BJs Wholesale with a short position of Estee Lauder. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and Estee Lauder.

Diversification Opportunities for BJs Wholesale and Estee Lauder

-0.52

Correlation Coefficient

BJs Wholesale  Estee Lauder

Excellent diversification

The 3 months correlation between BJs and Estee is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and Estee Lauder Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Estee Lauder Companies and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with Estee Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Estee Lauder Companies has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and Estee Lauder go up and down completely randomly.

Pair Corralation between BJs Wholesale and Estee Lauder

Allowing for the 90-day total investment horizon BJs Wholesale Club is expected to generate 0.76 times more return on investment than Estee Lauder. However, BJs Wholesale Club is 1.31 times less risky than Estee Lauder. It trades about 0.11 of its potential returns per unit of risk. Estee Lauder Companies is currently generating about -0.05 per unit of risk. If you would invest  9,444  in BJs Wholesale Club on December 26, 2024 and sell it today you would earn a total of  1,504  from holding BJs Wholesale Club or generate 15.93% return on investment over 90 days.

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

BJs Wholesale Club  vs.  Estee Lauder Companies

BJs Wholesale Club

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Wholesale Club are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward-looking indicators, BJs Wholesale revealed solid returns over the last few months and may actually be approaching a breakup point.

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with BJs Wholesale and Estee Lauder

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

The idea behind BJs Wholesale Club and Estee Lauder Companies 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.