Correlation Between ELF Beauty and Big Tree

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

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

Diversification Opportunities for ELF Beauty and Big Tree

-0.57

Correlation Coefficient

ELF Beauty  Big Tree

Excellent diversification

The 3 months correlation between ELF and Big is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and Big Tree Cloud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Tree Cloud and ELF Beauty 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 ELF Beauty are associated (or correlated) with Big Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Tree Cloud has no effect on the direction of ELF Beauty i.e., ELF Beauty and Big Tree go up and down completely randomly.

Pair Corralation between ELF Beauty and Big Tree

Considering the 90-day investment horizon ELF Beauty is expected to generate 0.29 times more return on investment than Big Tree. However, ELF Beauty is 3.5 times less risky than Big Tree. It trades about 0.11 of its potential returns per unit of risk. Big Tree Cloud is currently generating about 0.02 per unit of risk. If you would invest  11,319  in ELF Beauty on September 16, 2024 and sell it today you would earn a total of  2,744  from holding ELF Beauty or generate 24.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

ELF Beauty  vs.  Big Tree Cloud

ELF Beauty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, ELF Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Big Tree Cloud

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Big Tree Cloud are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Big Tree showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELF Beauty and Big Tree

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

The idea behind ELF Beauty and Big Tree Cloud 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.