Correlation Between CompoSecure and Beauty Health

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

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

Diversification Opportunities for CompoSecure and Beauty Health

-0.24

Correlation Coefficient

CompoSecure  Beauty Health

Very good diversification

The 3 months correlation between CompoSecure and Beauty is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding CompoSecure and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health and CompoSecure 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 CompoSecure 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 CompoSecure i.e., CompoSecure and Beauty Health go up and down completely randomly.

Pair Corralation between CompoSecure and Beauty Health

Assuming the 90 days horizon CompoSecure is expected to under-perform the Beauty Health. But the stock apears to be less risky and, when comparing its historical volatility, CompoSecure is 1.43 times less risky than Beauty Health. The stock trades about -0.18 of its potential returns per unit of risk. The Beauty Health Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  152.00  in Beauty Health Co on October 3, 2024 and sell it today you would earn a total of  7.00  from holding Beauty Health Co or generate 4.61% return on investment over 90 days.

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

CompoSecure  vs.  Beauty Health Co

CompoSecure

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CompoSecure are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CompoSecure showed solid returns over the last few months and may actually be approaching a breakup point.

Beauty Health

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beauty Health Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Beauty Health displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CompoSecure and Beauty Health

The main advantage of trading using opposite CompoSecure and Beauty Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CompoSecure 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 CompoSecure 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.