Correlation Between Fossil and Brilliant Earth

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Can any of the company-specific risk be diversified away by investing in both Fossil and Brilliant Earth 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 Fossil and Brilliant Earth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fossil Group and Brilliant Earth Group, you can compare the effects of market volatilities on Fossil and Brilliant Earth 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 Fossil with a short position of Brilliant Earth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fossil and Brilliant Earth.

Diversification Opportunities for Fossil and Brilliant Earth

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Fossil and Brilliant is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Fossil Group and Brilliant Earth Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brilliant Earth Group and Fossil 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 Fossil Group are associated (or correlated) with Brilliant Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brilliant Earth Group has no effect on the direction of Fossil i.e., Fossil and Brilliant Earth go up and down completely randomly.

Pair Corralation between Fossil and Brilliant Earth

Given the investment horizon of 90 days Fossil Group is expected to generate 2.18 times more return on investment than Brilliant Earth. However, Fossil is 2.18 times more volatile than Brilliant Earth Group. It trades about 0.1 of its potential returns per unit of risk. Brilliant Earth Group is currently generating about 0.03 per unit of risk. If you would invest  119.00  in Fossil Group on November 19, 2024 and sell it today you would earn a total of  54.00  from holding Fossil Group or generate 45.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Fossil Group  vs.  Brilliant Earth Group

 Performance 
       Timeline  
Fossil Group 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Fossil Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Fossil disclosed solid returns over the last few months and may actually be approaching a breakup point.
Brilliant Earth Group 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Brilliant Earth Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent essential indicators, Brilliant Earth may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Fossil and Brilliant Earth Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fossil and Brilliant Earth

The main advantage of trading using opposite Fossil and Brilliant Earth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fossil position performs unexpectedly, Brilliant Earth 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 Brilliant Earth will offset losses from the drop in Brilliant Earth's long position.
The idea behind Fossil Group and Brilliant Earth Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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