Correlation Between Beauty Health and Analog Devices

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

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

Diversification Opportunities for Beauty Health and Analog Devices

-0.07

Correlation Coefficient

Beauty Health  Analog Devices

Good diversification

The 3 months correlation between Beauty and Analog is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Beauty Health Co and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and Beauty Health 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 Beauty Health Co are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of Beauty Health i.e., Beauty Health and Analog Devices go up and down completely randomly.

Pair Corralation between Beauty Health and Analog Devices

Given the investment horizon of 90 days Beauty Health Co is expected to under-perform the Analog Devices. In addition to that, Beauty Health is 2.05 times more volatile than Analog Devices. It trades about -0.03 of its total potential returns per unit of risk. Analog Devices is currently generating about 0.05 per unit of volatility. If you would invest  21,738  in Analog Devices on December 4, 2024 and sell it today you would earn a total of  1,115  from holding Analog Devices or generate 5.13% return on investment over 90 days.

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

Beauty Health Co  vs.  Analog Devices

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 latest uncertain performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Analog Devices

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental indicators, Analog Devices may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Beauty Health and Analog Devices

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

The idea behind Beauty Health Co and Analog Devices 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.