Correlation Between Brilliant Earth and Continental

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

By analyzing existing cross correlation between Brilliant Earth Group and Caleres, you can compare the effects of market volatilities on Brilliant Earth and Continental 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 Brilliant Earth with a short position of Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brilliant Earth and Continental.

Diversification Opportunities for Brilliant Earth and Continental

0.25

Correlation Coefficient

Brilliant Earth  Continental

Modest diversification

The 3 months correlation between Brilliant and Continental is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Brilliant Earth Group and Caleres in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental and Brilliant Earth 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 Brilliant Earth Group are associated (or correlated) with Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental has no effect on the direction of Brilliant Earth i.e., Brilliant Earth and Continental go up and down completely randomly.

Pair Corralation between Brilliant Earth and Continental

Given the investment horizon of 90 days Brilliant Earth Group is expected to generate 1.11 times more return on investment than Continental. However, Brilliant Earth is 1.11 times more volatile than Caleres. It trades about -0.01 of its potential returns per unit of risk. Caleres is currently generating about -0.1 per unit of risk. If you would invest  221.00  in Brilliant Earth Group on September 17, 2024 and sell it today you would lose (17.00) from holding Brilliant Earth Group or give up 7.69% of portfolio value over 90 days.

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

Brilliant Earth Group  vs.  Caleres

Brilliant Earth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brilliant Earth Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Brilliant Earth is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Continental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caleres has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Brilliant Earth and Continental

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

The idea behind Brilliant Earth Group and Caleres 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.