Correlation Between Beauty Health and Century Aluminum

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

Diversification Opportunities for Beauty Health and Century Aluminum

0.05

Correlation Coefficient

Beauty Health  Century Aluminum

Significant diversification

The 3 months correlation between Beauty and Century is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Beauty Health Co and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum 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 Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Beauty Health i.e., Beauty Health and Century Aluminum go up and down completely randomly.

Pair Corralation between Beauty Health and Century Aluminum

Given the investment horizon of 90 days Beauty Health Co is expected to generate 1.44 times more return on investment than Century Aluminum. However, Beauty Health is 1.44 times more volatile than Century Aluminum. It trades about -0.02 of its potential returns per unit of risk. Century Aluminum is currently generating about -0.36 per unit of risk. If you would invest  149.00  in Beauty Health Co on September 21, 2024 and sell it today you would lose (5.50) from holding Beauty Health Co or give up 3.69% of portfolio value over 90 days.

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

Beauty Health Co  vs.  Century Aluminum

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 uncertain forward indicators, Beauty Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Century Aluminum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beauty Health and Century Aluminum

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

The idea behind Beauty Health Co and Century Aluminum 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.