Correlation Between Extra Space and Bath Body

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

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

Diversification Opportunities for Extra Space and Bath Body

0.37

Correlation Coefficient

Extra Space  Bath Body

Weak diversification

The 3 months correlation between Extra and Bath is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage 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 Extra Space 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 Extra Space Storage 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 Extra Space i.e., Extra Space and Bath Body go up and down completely randomly.

Pair Corralation between Extra Space and Bath Body

Assuming the 90 days trading horizon Extra Space Storage is expected to under-perform the Bath Body. But the stock apears to be less risky and, when comparing its historical volatility, Extra Space Storage is 1.03 times less risky than Bath Body. The stock trades about -0.05 of its potential returns per unit of risk. The Bath Body Works is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,145  in Bath Body Works on September 25, 2024 and sell it today you would earn a total of  1,873  from holding Bath Body Works or generate 45.19% return on investment over 90 days.

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

Extra Space Storage  vs.  Bath Body Works

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage 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.

Bath Body Works

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Bath Body sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Extra Space and Bath Body

The main advantage of trading using opposite Extra Space and Bath Body positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extra Space 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 Extra Space Storage 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.