Correlation Between Designer Brands and Beauty Health

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

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

Diversification Opportunities for Designer Brands and Beauty Health

-0.07

Correlation Coefficient

Designer Brands  Beauty Health

Good diversification

The 3 months correlation between Designer and Beauty is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Designer Brands and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health and Designer Brands 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 Designer Brands 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 Designer Brands i.e., Designer Brands and Beauty Health go up and down completely randomly.

Pair Corralation between Designer Brands and Beauty Health

Considering the 90-day investment horizon Designer Brands is expected to generate 2.8 times less return on investment than Beauty Health. But when comparing it to its historical volatility, Designer Brands is 1.21 times less risky than Beauty Health. It trades about 0.07 of its potential returns per unit of risk. Beauty Health Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  144.00  in Beauty Health Co on October 24, 2024 and sell it today you would earn a total of  23.00  from holding Beauty Health Co or generate 15.97% return on investment over 90 days.

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

Designer Brands  vs.  Beauty Health Co

Designer Brands

Risk-Adjusted Performance

1 of 100

Weak

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

Beauty Health

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beauty Health Co are ranked lower than 1 (%) 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 February 2025.

Pair Trading with Designer Brands and Beauty Health

The main advantage of trading using opposite Designer Brands and Beauty Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Designer Brands 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 Designer Brands 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.