Correlation Between Eclectic Bar and Bath Body

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

By analyzing existing cross correlation between Eclectic Bar Group and Bath Body Works, you can compare the effects of market volatilities on Eclectic Bar and Bath Body 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 Eclectic Bar with a short position of Bath Body. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eclectic Bar and Bath Body.

Diversification Opportunities for Eclectic Bar and Bath Body

0.69

Correlation Coefficient

Eclectic Bar  Bath Body

Poor diversification

The 3 months correlation between Eclectic and Bath is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Eclectic Bar Group and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works and Eclectic Bar 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 Eclectic Bar Group are associated (or correlated) with Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Eclectic Bar i.e., Eclectic Bar and Bath Body go up and down completely randomly.

Pair Corralation between Eclectic Bar and Bath Body

Assuming the 90 days trading horizon Eclectic Bar Group is expected to generate 3.89 times more return on investment than Bath Body. However, Eclectic Bar is 3.89 times more volatile than Bath Body Works. It trades about 0.1 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.14 per unit of risk. If you would invest  2,800  in Eclectic Bar Group on September 23, 2024 and sell it today you would earn a total of  1,900  from holding Eclectic Bar Group or generate 67.86% return on investment over 90 days.

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

Eclectic Bar Group  vs.  Bath Body Works

Eclectic Bar Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eclectic Bar Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Eclectic Bar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bath Body Works

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bath Body unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eclectic Bar and Bath Body

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

The idea behind Eclectic Bar Group and Bath Body Works 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.