Correlation Between JD Sports and Revolution Beauty

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

By analyzing existing cross correlation between JD Sports Fashion and Revolution Beauty Group, you can compare the effects of market volatilities on JD Sports and Revolution 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 JD Sports with a short position of Revolution Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of JD Sports and Revolution Beauty.

Diversification Opportunities for JD Sports and Revolution Beauty

0.5

Correlation Coefficient

JD Sports  Revolution Beauty

Very weak diversification

The 3 months correlation between JD Sports and Revolution is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Revolution Beauty Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Beauty and JD Sports 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 JD Sports Fashion are associated (or correlated) with Revolution Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Revolution Beauty has no effect on the direction of JD Sports i.e., JD Sports and Revolution Beauty go up and down completely randomly.

Pair Corralation between JD Sports and Revolution Beauty

Assuming the 90 days trading horizon JD Sports Fashion is expected to under-perform the Revolution Beauty. But the stock apears to be less risky and, when comparing its historical volatility, JD Sports Fashion is 1.82 times less risky than Revolution Beauty. The stock trades about -0.18 of its potential returns per unit of risk. The Revolution Beauty Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,424  in Revolution Beauty Group on October 7, 2024 and sell it today you would earn a total of  552.00  from holding Revolution Beauty Group or generate 38.76% return on investment over 90 days.

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

JD Sports Fashion  vs.  Revolution Beauty Group

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion 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 basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Revolution Beauty

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Revolution Beauty Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Revolution Beauty unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JD Sports and Revolution Beauty

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

The idea behind JD Sports Fashion and Revolution Beauty 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.

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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 Anywhere module to track or share privately all of your investments from the convenience of any device.