Correlation Between European Wax and ELF Beauty

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

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

Diversification Opportunities for European Wax and ELF Beauty

-0.47

Correlation Coefficient

European Wax  ELF Beauty

Very good diversification

The 3 months correlation between European and ELF is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding European Wax Center and ELF Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELF Beauty and European Wax 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 European Wax Center are associated (or correlated) with ELF Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELF Beauty has no effect on the direction of European Wax i.e., European Wax and ELF Beauty go up and down completely randomly.

Pair Corralation between European Wax and ELF Beauty

Given the investment horizon of 90 days European Wax Center is expected to generate 1.86 times more return on investment than ELF Beauty. However, European Wax is 1.86 times more volatile than ELF Beauty. It trades about 0.01 of its potential returns per unit of risk. ELF Beauty is currently generating about -0.15 per unit of risk. If you would invest  641.00  in European Wax Center on October 10, 2024 and sell it today you would lose (6.00) from holding European Wax Center or give up 0.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

European Wax Center  vs.  ELF Beauty

European Wax Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Wax Center has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, European Wax is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

ELF Beauty

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 7 (%) 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.

Pair Trading with European Wax and ELF Beauty

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

The idea behind European Wax Center and ELF Beauty 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.