Correlation Between Sally Beauty and Leslies

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

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

Diversification Opportunities for Sally Beauty and Leslies

0.92

Correlation Coefficient

Sally Beauty  Leslies

Almost no diversification

The 3 months correlation between Sally and Leslies is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Sally Beauty Holdings and Leslies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leslies and Sally 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 Sally Beauty Holdings are associated (or correlated) with Leslies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leslies has no effect on the direction of Sally Beauty i.e., Sally Beauty and Leslies go up and down completely randomly.

Pair Corralation between Sally Beauty and Leslies

Considering the 90-day investment horizon Sally Beauty Holdings is expected to generate 0.48 times more return on investment than Leslies. However, Sally Beauty Holdings is 2.08 times less risky than Leslies. It trades about -0.06 of its potential returns per unit of risk. Leslies is currently generating about -0.25 per unit of risk. If you would invest  1,000.00  in Sally Beauty Holdings on December 28, 2024 and sell it today you would lose (115.00) from holding Sally Beauty Holdings or give up 11.5% of portfolio value over 90 days.

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

Sally Beauty Holdings  vs.  Leslies

Sally Beauty Holdings

Risk-Adjusted Performance

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 latest conflicting performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Leslies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leslies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Sally Beauty and Leslies

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

The idea behind Sally Beauty Holdings and Leslies 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.