Correlation Between Coty and European Wax

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

By analyzing existing cross correlation between Coty Inc and European Wax Center, you can compare the effects of market volatilities on Coty and European Wax 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 Coty with a short position of European Wax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coty and European Wax.

Diversification Opportunities for Coty and European Wax

0.27

Correlation Coefficient

Coty  European Wax

Modest diversification

The 3 months correlation between Coty and European is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and European Wax Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Wax Center and Coty 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 Coty Inc are associated (or correlated) with European Wax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Wax Center has no effect on the direction of Coty i.e., Coty and European Wax go up and down completely randomly.

Pair Corralation between Coty and European Wax

Given the investment horizon of 90 days Coty Inc is expected to generate 0.57 times more return on investment than European Wax. However, Coty Inc is 1.75 times less risky than European Wax. It trades about -0.03 of its potential returns per unit of risk. European Wax Center is currently generating about -0.04 per unit of risk. If you would invest  957.00  in Coty Inc on October 12, 2024 and sell it today you would lose (290.00) from holding Coty Inc or give up 30.3% of portfolio value over 90 days.

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

Coty Inc  vs.  European Wax Center

Coty Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coty Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

European Wax Center

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in European Wax Center are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, European Wax may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Coty and European Wax

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

The idea behind Coty Inc and European Wax Center 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.