Correlation Between Beauty Health and Aris Water

Can any of the company-specific risk be diversified away by investing in both Beauty Health and Aris Water 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 Aris Water 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 Aris Water Solutions, you can compare the effects of market volatilities on Beauty Health and Aris Water 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 Aris Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beauty Health and Aris Water.

Diversification Opportunities for Beauty Health and Aris Water

-0.18

Correlation Coefficient

Beauty Health  Aris Water

Good diversification

The 3 months correlation between Beauty and Aris is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Beauty Health Co and Aris Water Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aris Water Solutions 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 Aris Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aris Water Solutions has no effect on the direction of Beauty Health i.e., Beauty Health and Aris Water go up and down completely randomly.

Pair Corralation between Beauty Health and Aris Water

Given the investment horizon of 90 days Beauty Health Co is expected to under-perform the Aris Water. In addition to that, Beauty Health is 1.69 times more volatile than Aris Water Solutions. It trades about -0.02 of its total potential returns per unit of risk. Aris Water Solutions is currently generating about 0.05 per unit of volatility. If you would invest  1,309  in Aris Water Solutions on September 18, 2024 and sell it today you would earn a total of  1,144  from holding Aris Water Solutions or generate 87.39% 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.  Aris Water Solutions

Beauty Health

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beauty Health Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Beauty Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aris Water Solutions

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beauty Health and Aris Water

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

The idea behind Beauty Health Co and Aris Water Solutions 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.