Correlation Between ELF Beauty and Inter Parfums

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

By analyzing existing cross correlation between ELF Beauty and Inter Parfums, you can compare the effects of market volatilities on ELF Beauty and Inter Parfums 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 Inter Parfums. Check out your portfolio center. Please also check ongoing floating volatility patterns of ELF Beauty and Inter Parfums.

Diversification Opportunities for ELF Beauty and Inter Parfums

0.74

Correlation Coefficient

ELF Beauty  Inter Parfums

Poor diversification

The 3 months correlation between ELF and Inter is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums 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 Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of ELF Beauty i.e., ELF Beauty and Inter Parfums go up and down completely randomly.

Pair Corralation between ELF Beauty and Inter Parfums

Considering the 90-day investment horizon ELF Beauty is expected to generate 2.06 times more return on investment than Inter Parfums. However, ELF Beauty is 2.06 times more volatile than Inter Parfums. It trades about 0.1 of its potential returns per unit of risk. Inter Parfums is currently generating about 0.16 per unit of risk. If you would invest  11,663  in ELF Beauty on September 13, 2024 and sell it today you would earn a total of  2,184  from holding ELF Beauty or generate 18.73% return on investment over 90 days.

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

ELF Beauty  vs.  Inter Parfums

ELF Beauty

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, ELF Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Inter Parfums

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Parfums are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Inter Parfums reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELF Beauty and Inter Parfums

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

The idea behind ELF Beauty and Inter Parfums 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.