Correlation Between Honest and Spectrum Brands

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

By analyzing existing cross correlation between Honest Company and Spectrum Brands Holdings, you can compare the effects of market volatilities on Honest and Spectrum Brands 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 Honest with a short position of Spectrum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honest and Spectrum Brands.

Diversification Opportunities for Honest and Spectrum Brands

0.29

Correlation Coefficient

Honest  Spectrum Brands

Modest diversification

The 3 months correlation between Honest and Spectrum is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Honest Company and Spectrum Brands Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Brands Holdings and Honest 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 Honest Company are associated (or correlated) with Spectrum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Brands Holdings has no effect on the direction of Honest i.e., Honest and Spectrum Brands go up and down completely randomly.

Pair Corralation between Honest and Spectrum Brands

Given the investment horizon of 90 days Honest Company is expected to generate 3.28 times more return on investment than Spectrum Brands. However, Honest is 3.28 times more volatile than Spectrum Brands Holdings. It trades about 0.21 of its potential returns per unit of risk. Spectrum Brands Holdings is currently generating about -0.01 per unit of risk. If you would invest  400.00  in Honest Company on September 13, 2024 and sell it today you would earn a total of  295.00  from holding Honest Company or generate 73.75% return on investment over 90 days.

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

Honest Company  vs.  Spectrum Brands Holdings

Honest Company

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Honest Company are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Honest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Spectrum Brands Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Spectrum Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Honest and Spectrum Brands

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

The idea behind Honest Company and Spectrum Brands Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.