Correlation Between Brilliant Earth and Destination

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

By analyzing existing cross correlation between Brilliant Earth Group and Destination XL Group, you can compare the effects of market volatilities on Brilliant Earth and Destination 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 Brilliant Earth with a short position of Destination. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brilliant Earth and Destination.

Diversification Opportunities for Brilliant Earth and Destination

-0.1

Correlation Coefficient

Brilliant Earth  Destination

Good diversification

The 3 months correlation between Brilliant and Destination is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Brilliant Earth Group and Destination XL Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Destination XL Group and Brilliant Earth 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 Brilliant Earth Group are associated (or correlated) with Destination. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Destination XL Group has no effect on the direction of Brilliant Earth i.e., Brilliant Earth and Destination go up and down completely randomly.

Pair Corralation between Brilliant Earth and Destination

Given the investment horizon of 90 days Brilliant Earth Group is expected to generate 0.74 times more return on investment than Destination. However, Brilliant Earth Group is 1.35 times less risky than Destination. It trades about 0.37 of its potential returns per unit of risk. Destination XL Group is currently generating about -0.21 per unit of risk. If you would invest  165.00  in Brilliant Earth Group on September 22, 2024 and sell it today you would earn a total of  36.00  from holding Brilliant Earth Group or generate 21.82% return on investment over 90 days.

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

Brilliant Earth Group  vs.  Destination XL Group

Brilliant Earth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brilliant Earth Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Brilliant Earth is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Destination XL Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destination XL Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Brilliant Earth and Destination

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

The idea behind Brilliant Earth Group and Destination XL Group 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.