Correlation Between Revolution Beauty and Auto Trader

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

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

Diversification Opportunities for Revolution Beauty and Auto Trader

0.33

Correlation Coefficient

Revolution Beauty  Auto Trader

Weak diversification

The 3 months correlation between Revolution and Auto is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Beauty Group and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and Revolution Beauty 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 Revolution Beauty Group are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Revolution Beauty i.e., Revolution Beauty and Auto Trader go up and down completely randomly.

Pair Corralation between Revolution Beauty and Auto Trader

Assuming the 90 days trading horizon Revolution Beauty Group is expected to generate 4.17 times more return on investment than Auto Trader. However, Revolution Beauty is 4.17 times more volatile than Auto Trader Group. It trades about 0.16 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.09 per unit of risk. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Revolution Beauty Group  vs.  Auto Trader Group

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.

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Auto Trader is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Revolution Beauty and Auto Trader

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

The idea behind Revolution Beauty Group and Auto Trader 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.