Correlation Between Beauty Community and Demco Public

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

By analyzing existing cross correlation between Beauty Community Public and Demco Public, you can compare the effects of market volatilities on Beauty Community and Demco Public 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 Community with a short position of Demco Public. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beauty Community and Demco Public.

Diversification Opportunities for Beauty Community and Demco Public

0.83

Correlation Coefficient

Beauty Community  Demco Public

Very poor diversification

The 3 months correlation between Beauty and Demco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Beauty Community Public and Demco Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demco Public and Beauty Community 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 Community Public are associated (or correlated) with Demco Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demco Public has no effect on the direction of Beauty Community i.e., Beauty Community and Demco Public go up and down completely randomly.

Pair Corralation between Beauty Community and Demco Public

Assuming the 90 days trading horizon Beauty Community Public is expected to under-perform the Demco Public. In addition to that, Beauty Community is 1.53 times more volatile than Demco Public. It trades about -0.07 of its total potential returns per unit of risk. Demco Public is currently generating about -0.05 per unit of volatility. If you would invest  360.00  in Demco Public on September 5, 2024 and sell it today you would lose (26.00) from holding Demco Public or give up 7.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Beauty Community Public  vs.  Demco Public

Beauty Community Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beauty Community Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting 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.

Demco Public

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Beauty Community and Demco Public

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

The idea behind Beauty Community Public and Demco Public 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.