Correlation Between Rocky Brands and European Wax

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

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

Diversification Opportunities for Rocky Brands and European Wax

0.22

Correlation Coefficient

Rocky Brands  European Wax

Modest diversification

The 3 months correlation between Rocky and European is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Brands and European Wax Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Wax Center and Rocky Brands 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 Rocky Brands are associated (or correlated) with European Wax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Wax Center has no effect on the direction of Rocky Brands i.e., Rocky Brands and European Wax go up and down completely randomly.

Pair Corralation between Rocky Brands and European Wax

Given the investment horizon of 90 days Rocky Brands is expected to under-perform the European Wax. But the stock apears to be less risky and, when comparing its historical volatility, Rocky Brands is 1.08 times less risky than European Wax. The stock trades about -0.08 of its potential returns per unit of risk. The European Wax Center is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  733.00  in European Wax Center on September 17, 2024 and sell it today you would lose (129.00) from holding European Wax Center or give up 17.6% of portfolio value over 90 days.

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

Rocky Brands  vs.  European Wax Center

Rocky Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

European Wax Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Wax Center has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Rocky Brands and European Wax

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

The idea behind Rocky Brands and European Wax Center 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.