Correlation Between Franchise and Sally Beauty

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

Diversification Opportunities for Franchise and Sally Beauty

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Franchise and Sally is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Franchise Group and Sally Beauty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sally Beauty Holdings and Franchise 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 Franchise Group are associated (or correlated) with Sally Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sally Beauty Holdings has no effect on the direction of Franchise i.e., Franchise and Sally Beauty go up and down completely randomly.

Pair Corralation between Franchise and Sally Beauty

Considering the 90-day investment horizon Franchise Group is expected to generate 0.81 times more return on investment than Sally Beauty. However, Franchise Group is 1.23 times less risky than Sally Beauty. It trades about 0.02 of its potential returns per unit of risk. Sally Beauty Holdings is currently generating about 0.0 per unit of risk. If you would invest  2,894  in Franchise Group on September 27, 2024 and sell it today you would earn a total of  76.00  from holding Franchise Group or generate 2.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy27.57%
ValuesDaily Returns

Franchise Group  vs.  Sally Beauty Holdings

 Performance 
       Timeline  
Franchise Group 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Franchise Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Franchise is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Sally Beauty Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Sally Beauty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Franchise and Sally Beauty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Franchise and Sally Beauty

The main advantage of trading using opposite Franchise and Sally Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franchise position performs unexpectedly, Sally 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 Sally Beauty will offset losses from the drop in Sally Beauty's long position.
The idea behind Franchise Group and Sally Beauty Holdings 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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