Correlation Between Spectrum Brands and Clorox

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

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

Diversification Opportunities for Spectrum Brands and Clorox

0.31

Correlation Coefficient

Spectrum Brands  Clorox

Weak diversification

The 3 months correlation between Spectrum and Clorox is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox and Spectrum Brands 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 Spectrum Brands Holdings are associated (or correlated) with Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of Spectrum Brands i.e., Spectrum Brands and Clorox go up and down completely randomly.

Pair Corralation between Spectrum Brands and Clorox

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to under-perform the Clorox. In addition to that, Spectrum Brands is 1.62 times more volatile than The Clorox. It trades about -0.08 of its total potential returns per unit of risk. The Clorox is currently generating about 0.06 per unit of volatility. If you would invest  15,857  in The Clorox on October 8, 2024 and sell it today you would earn a total of  432.00  from holding The Clorox or generate 2.72% return on investment over 90 days.

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

Spectrum Brands Holdings  vs.  The Clorox

Spectrum Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Clorox

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Clorox are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Clorox is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Spectrum Brands and Clorox

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

The idea behind Spectrum Brands Holdings and The Clorox 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.