Correlation Between Big 5 and Sally Beauty
Can any of the company-specific risk be diversified away by investing in both Big 5 and Sally 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 Big 5 and Sally Beauty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Sally Beauty Holdings, you can compare the effects of market volatilities on Big 5 and Sally 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 Big 5 with a short position of Sally Beauty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Sally Beauty.
Diversification Opportunities for Big 5 and Sally Beauty
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Big and Sally is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Sally Beauty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sally Beauty Holdings and Big 5 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 Big 5 Sporting are associated (or correlated) with Sally Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sally Beauty Holdings has no effect on the direction of Big 5 i.e., Big 5 and Sally Beauty go up and down completely randomly.
Pair Corralation between Big 5 and Sally Beauty
Given the investment horizon of 90 days Big 5 Sporting is expected to generate 2.02 times more return on investment than Sally Beauty. However, Big 5 is 2.02 times more volatile than Sally Beauty Holdings. It trades about -0.02 of its potential returns per unit of risk. Sally Beauty Holdings is currently generating about -0.07 per unit of risk. If you would invest 200.00 in Big 5 Sporting on November 1, 2024 and sell it today you would lose (39.00) from holding Big 5 Sporting or give up 19.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big 5 Sporting vs. Sally Beauty Holdings
Performance |
| Timeline |
| Big 5 Sporting |
| Sally Beauty Holdings |
Big 5 and Sally Beauty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and Sally Beauty
The main advantage of trading using opposite Big 5 and Sally Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Sally 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 Sally Beauty will offset losses from the drop in Sally Beauty's long position.The idea behind Big 5 Sporting and Sally Beauty 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.| Sally Beauty vs. Leslies | Sally Beauty vs. National Vision Holdings | Sally Beauty vs. Sportsmans | Sally Beauty vs. MarineMax |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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