Correlation Between Beauty Health and Trupanion

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

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

Diversification Opportunities for Beauty Health and Trupanion

0.43

Correlation Coefficient

Beauty Health  Trupanion

Very weak diversification

The 3 months correlation between Beauty and Trupanion is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Beauty Health Co and Trupanion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trupanion and Beauty Health 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 Beauty Health Co are associated (or correlated) with Trupanion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trupanion has no effect on the direction of Beauty Health i.e., Beauty Health and Trupanion go up and down completely randomly.

Pair Corralation between Beauty Health and Trupanion

Given the investment horizon of 90 days Beauty Health is expected to generate 4.35 times less return on investment than Trupanion. In addition to that, Beauty Health is 1.51 times more volatile than Trupanion. It trades about 0.01 of its total potential returns per unit of risk. Trupanion is currently generating about 0.08 per unit of volatility. If you would invest  4,655  in Trupanion on September 17, 2024 and sell it today you would earn a total of  618.00  from holding Trupanion or generate 13.28% return on investment over 90 days.

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

Beauty Health Co  vs.  Trupanion

Beauty Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beauty Health Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Beauty Health is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Trupanion

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trupanion are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Trupanion reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beauty Health and Trupanion

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

The idea behind Beauty Health Co and Trupanion 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.