Correlation Between Hims Hers and ELF Beauty

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

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

Diversification Opportunities for Hims Hers and ELF Beauty

0.05

Correlation Coefficient

Hims Hers  ELF Beauty

Significant diversification

The 3 months correlation between Hims and ELF is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Hims Hers Health and ELF Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELF Beauty and Hims Hers 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 Hims Hers Health are associated (or correlated) with ELF Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELF Beauty has no effect on the direction of Hims Hers i.e., Hims Hers and ELF Beauty go up and down completely randomly.

Pair Corralation between Hims Hers and ELF Beauty

Given the investment horizon of 90 days Hims Hers Health is expected to generate 1.97 times more return on investment than ELF Beauty. However, Hims Hers is 1.97 times more volatile than ELF Beauty. It trades about 0.19 of its potential returns per unit of risk. ELF Beauty is currently generating about -0.05 per unit of risk. If you would invest  1,473  in Hims Hers Health on August 30, 2024 and sell it today you would earn a total of  1,561  from holding Hims Hers Health or generate 105.97% return on investment over 90 days.

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

Hims Hers Health  vs.  ELF Beauty

Hims Hers Health

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hims Hers Health are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Hims Hers unveiled solid returns over the last few months and may actually be approaching a breakup point.

ELF Beauty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ELF Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Hims Hers and ELF Beauty

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

The idea behind Hims Hers Health and ELF Beauty 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.