Correlation Between Summit Materials and European Wax

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

By analyzing existing cross correlation between Summit Materials and European Wax Center, you can compare the effects of market volatilities on Summit Materials and European Wax 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 Summit Materials with a short position of European Wax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and European Wax.

Diversification Opportunities for Summit Materials and European Wax

-0.34

Correlation Coefficient

Summit Materials  European Wax

Very good diversification

The 3 months correlation between Summit and European is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and European Wax Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Wax Center and Summit Materials 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 Summit Materials are associated (or correlated) with European Wax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Wax Center has no effect on the direction of Summit Materials i.e., Summit Materials and European Wax go up and down completely randomly.

Pair Corralation between Summit Materials and European Wax

Considering the 90-day investment horizon Summit Materials is expected to generate 0.57 times more return on investment than European Wax. However, Summit Materials is 1.75 times less risky than European Wax. It trades about 0.06 of its potential returns per unit of risk. European Wax Center is currently generating about -0.03 per unit of risk. If you would invest  3,099  in Summit Materials on October 3, 2024 and sell it today you would earn a total of  1,961  from holding Summit Materials or generate 63.28% return on investment over 90 days.

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

Summit Materials  vs.  European Wax Center

Summit Materials

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

European Wax Center

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in European Wax Center are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, European Wax may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Summit Materials and European Wax

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

The idea behind Summit Materials and European Wax Center 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.