Correlation Between Honest and Beauty Health

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

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

Diversification Opportunities for Honest and Beauty Health

0.79

Correlation Coefficient

Honest  Beauty Health

Poor diversification

The 3 months correlation between Honest and Beauty is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Honest Company and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health and Honest 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 Honest Company are associated (or correlated) with Beauty Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beauty Health has no effect on the direction of Honest i.e., Honest and Beauty Health go up and down completely randomly.

Pair Corralation between Honest and Beauty Health

Given the investment horizon of 90 days Honest Company is expected to under-perform the Beauty Health. But the stock apears to be less risky and, when comparing its historical volatility, Honest Company is 1.29 times less risky than Beauty Health. The stock trades about -0.13 of its potential returns per unit of risk. The Beauty Health Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  160.00  in Beauty Health Co on December 29, 2024 and sell it today you would lose (28.00) from holding Beauty Health Co or give up 17.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Honest Company  vs.  Beauty Health Co

Honest Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honest Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Beauty Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beauty Health Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Honest and Beauty Health

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

The idea behind Honest Company and Beauty Health Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.