Correlation Between Church Dwight and Beauty Health

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

By analyzing existing cross correlation between Church Dwight and Beauty Health Co, you can compare the effects of market volatilities on Church Dwight and Beauty Health 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 Church Dwight with a short position of Beauty Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Church Dwight and Beauty Health.

Diversification Opportunities for Church Dwight and Beauty Health

-0.28

Correlation Coefficient

Church Dwight  Beauty Health

Very good diversification

The 3 months correlation between Church and Beauty is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health and Church Dwight 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 Church Dwight are associated (or correlated) with Beauty Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beauty Health has no effect on the direction of Church Dwight i.e., Church Dwight and Beauty Health go up and down completely randomly.

Pair Corralation between Church Dwight and Beauty Health

Considering the 90-day investment horizon Church Dwight is expected to under-perform the Beauty Health. But the stock apears to be less risky and, when comparing its historical volatility, Church Dwight is 5.03 times less risky than Beauty Health. The stock trades about -0.28 of its potential returns per unit of risk. The Beauty Health Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  149.00  in Beauty Health Co on September 21, 2024 and sell it today you would lose (5.50) from holding Beauty Health Co or give up 3.69% of portfolio value over 90 days.

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

Church Dwight  vs.  Beauty Health Co

Church Dwight

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Beauty Health

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beauty Health Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain forward indicators, Beauty Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Church Dwight and Beauty Health

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

The idea behind Church Dwight and Beauty Health Co 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.