Correlation Between Brilliant Earth and Signet Jewelers

Can any of the company-specific risk be diversified away by investing in both Brilliant Earth and Signet Jewelers 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 Signet Jewelers 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 Signet Jewelers, you can compare the effects of market volatilities on Brilliant Earth and Signet Jewelers 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 Signet Jewelers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brilliant Earth and Signet Jewelers.

Diversification Opportunities for Brilliant Earth and Signet Jewelers

0.81

Correlation Coefficient

Brilliant Earth  Signet Jewelers

Very poor diversification

The 3 months correlation between Brilliant and Signet is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Brilliant Earth Group and Signet Jewelers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signet Jewelers 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 Signet Jewelers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signet Jewelers has no effect on the direction of Brilliant Earth i.e., Brilliant Earth and Signet Jewelers go up and down completely randomly.

Pair Corralation between Brilliant Earth and Signet Jewelers

Given the investment horizon of 90 days Brilliant Earth Group is expected to generate 1.07 times more return on investment than Signet Jewelers. However, Brilliant Earth is 1.07 times more volatile than Signet Jewelers. It trades about -0.08 of its potential returns per unit of risk. Signet Jewelers is currently generating about -0.09 per unit of risk. If you would invest  210.00  in Brilliant Earth Group on December 29, 2024 and sell it today you would lose (54.00) from holding Brilliant Earth Group or give up 25.71% of portfolio value over 90 days.

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

Brilliant Earth Group  vs.  Signet Jewelers

Brilliant Earth Group

Risk-Adjusted Performance

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 inconsistent performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Signet Jewelers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Signet Jewelers 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 forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Brilliant Earth and Signet Jewelers

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

The idea behind Brilliant Earth Group and Signet Jewelers 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.