Correlation Between ELF Beauty and Shiseido

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

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

Diversification Opportunities for ELF Beauty and Shiseido

-0.75

Correlation Coefficient

ELF Beauty  Shiseido

Pay attention - limited upside

The 3 months correlation between ELF and Shiseido is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and Shiseido Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shiseido 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 Shiseido. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shiseido has no effect on the direction of ELF Beauty i.e., ELF Beauty and Shiseido go up and down completely randomly.

Pair Corralation between ELF Beauty and Shiseido

Considering the 90-day investment horizon ELF Beauty is expected to generate 1.63 times more return on investment than Shiseido. However, ELF Beauty is 1.63 times more volatile than Shiseido Company. It trades about 0.11 of its potential returns per unit of risk. Shiseido Company is currently generating about -0.17 per unit of risk. If you would invest  11,243  in ELF Beauty on September 17, 2024 and sell it today you would earn a total of  2,784  from holding ELF Beauty or generate 24.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

ELF Beauty  vs.  Shiseido Company

ELF Beauty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, ELF Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Shiseido

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shiseido Company 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with ELF Beauty and Shiseido

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

The idea behind ELF Beauty and Shiseido 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.