Correlation Between Lancashire Holdings and Beauty Health

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

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

Diversification Opportunities for Lancashire Holdings and Beauty Health

0.29

Correlation Coefficient

Lancashire Holdings  Beauty Health

Modest diversification

The 3 months correlation between Lancashire and Beauty is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Lancashire Holdings and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health and Lancashire Holdings 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 Lancashire Holdings 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 Lancashire Holdings i.e., Lancashire Holdings and Beauty Health go up and down completely randomly.

Pair Corralation between Lancashire Holdings and Beauty Health

Assuming the 90 days horizon Lancashire Holdings is expected to under-perform the Beauty Health. But the pink sheet apears to be less risky and, when comparing its historical volatility, Lancashire Holdings is 2.23 times less risky than Beauty Health. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Beauty Health Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  144.00  in Beauty Health Co on December 22, 2024 and sell it today you would lose (13.00) from holding Beauty Health Co or give up 9.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.0%
Values	Daily Returns

Lancashire Holdings  vs.  Beauty Health Co

Lancashire Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lancashire Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 very healthy forward indicators, Beauty Health is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lancashire Holdings and Beauty Health

The main advantage of trading using opposite Lancashire Holdings and Beauty Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lancashire Holdings 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 Lancashire Holdings 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.