Correlation Between ELF Beauty and Honest

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

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

Diversification Opportunities for ELF Beauty and Honest

0.81

Correlation Coefficient

ELF Beauty  Honest

Very poor diversification

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

Pair Corralation between ELF Beauty and Honest

Considering the 90-day investment horizon ELF Beauty is expected to under-perform the Honest. In addition to that, ELF Beauty is 1.25 times more volatile than Honest Company. It trades about -0.22 of its total potential returns per unit of risk. Honest Company is currently generating about -0.13 per unit of volatility. If you would invest  693.00  in Honest Company on December 27, 2024 and sell it today you would lose (195.00) from holding Honest Company or give up 28.14% of portfolio value over 90 days.

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

ELF Beauty  vs.  Honest Company

ELF Beauty

Risk-Adjusted Performance

Very Weak

Over the last 90 days ELF Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential 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.

Honest Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honest Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic 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.

Pair Trading with ELF Beauty and Honest

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

The idea behind ELF Beauty and Honest Company 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.