Correlation Between European Wax and Rocky Brands

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Can any of the company-specific risk be diversified away by investing in both European Wax and Rocky Brands 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 Rocky Brands 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 Rocky Brands, you can compare the effects of market volatilities on European Wax and Rocky Brands 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 Rocky Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Wax and Rocky Brands.

Diversification Opportunities for European Wax and Rocky Brands

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between European and Rocky is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding European Wax Center and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands 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 Rocky Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Brands has no effect on the direction of European Wax i.e., European Wax and Rocky Brands go up and down completely randomly.

Pair Corralation between European Wax and Rocky Brands

Given the investment horizon of 90 days European Wax Center is expected to generate 2.57 times more return on investment than Rocky Brands. However, European Wax is 2.57 times more volatile than Rocky Brands. It trades about 0.08 of its potential returns per unit of risk. Rocky Brands is currently generating about -0.08 per unit of risk. If you would invest  585.00  in European Wax Center on October 13, 2024 and sell it today you would earn a total of  31.00  from holding European Wax Center or generate 5.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

European Wax Center  vs.  Rocky Brands

 Performance 
       Timeline  
European Wax Center 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Rocky Brands 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Rocky Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals 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 and Rocky Brands Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with European Wax and Rocky Brands

The main advantage of trading using opposite European Wax and Rocky Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Wax position performs unexpectedly, Rocky Brands 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 Rocky Brands will offset losses from the drop in Rocky Brands' long position.
The idea behind European Wax Center and Rocky Brands 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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