Correlation Between Spectrum Brands and European Wax

Can any of the company-specific risk be diversified away by investing in both Spectrum 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 Spectrum 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 Spectrum Brands Holdings and European Wax Center, you can compare the effects of market volatilities on Spectrum 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 Spectrum Brands with a short position of European Wax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spectrum Brands and European Wax.

Diversification Opportunities for Spectrum Brands and European Wax

-0.11

Correlation Coefficient

Spectrum Brands  European Wax

Good diversification

The 3 months correlation between Spectrum and European is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings 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 Spectrum 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 Spectrum Brands Holdings 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 Spectrum Brands i.e., Spectrum Brands and European Wax go up and down completely randomly.

Pair Corralation between Spectrum Brands and European Wax

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to generate 0.78 times more return on investment than European Wax. However, Spectrum Brands Holdings is 1.28 times less risky than European Wax. It trades about 0.01 of its potential returns per unit of risk. European Wax Center is currently generating about -0.03 per unit of risk. If you would invest  8,101  in Spectrum Brands Holdings on January 31, 2024 and sell it today you would earn a total of  132.00  from holding Spectrum Brands Holdings or generate 1.63% return on investment over 90 days.

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

Spectrum Brands Holdings  vs.  European Wax Center

Spectrum Brands Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spectrum Brands Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Spectrum Brands is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Spectrum Brands and European Wax

The main advantage of trading using opposite Spectrum Brands and European Wax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spectrum 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 Spectrum Brands Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.