Correlation Between ELF Beauty and LOreal Co

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

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

Diversification Opportunities for ELF Beauty and LOreal Co

-0.67

Correlation Coefficient

ELF Beauty  LOreal Co

Excellent diversification

The 3 months correlation between ELF and LOreal is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR 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 LOreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of ELF Beauty i.e., ELF Beauty and LOreal Co go up and down completely randomly.

Pair Corralation between ELF Beauty and LOreal Co

Considering the 90-day investment horizon ELF Beauty is expected to generate 1.72 times more return on investment than LOreal Co. However, ELF Beauty is 1.72 times more volatile than LOreal Co ADR. It trades about 0.12 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.09 per unit of risk. If you would invest  11,319  in ELF Beauty on September 14, 2024 and sell it today you would earn a total of  2,742  from holding ELF Beauty or generate 24.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

ELF Beauty  vs.  LOreal Co ADR

ELF Beauty

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 9 (%) 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.

LOreal Co ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal Co ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators 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 ELF Beauty and LOreal Co

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

The idea behind ELF Beauty and LOreal Co ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.