Correlation Between Sally Beauty and Target

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

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

Diversification Opportunities for Sally Beauty and Target

-0.55

Correlation Coefficient

Sally Beauty  Target

Excellent diversification

The 3 months correlation between Sally and Target is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sally Beauty Holdings and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target and Sally Beauty 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 Sally Beauty Holdings are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Sally Beauty i.e., Sally Beauty and Target go up and down completely randomly.

Pair Corralation between Sally Beauty and Target

Considering the 90-day investment horizon Sally Beauty Holdings is expected to generate 1.23 times more return on investment than Target. However, Sally Beauty is 1.23 times more volatile than Target. It trades about -0.01 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest  1,505  in Sally Beauty Holdings on January 26, 2024 and sell it today you would lose (414.00) from holding Sally Beauty Holdings or give up 27.51% of portfolio value over 90 days.

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

Sally Beauty Holdings  vs.  Target

Sally Beauty Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sally Beauty Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Target

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sally Beauty and Target

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

The idea behind Sally Beauty Holdings and Target 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..