Correlation Between Spectrum Brands and Target

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

Diversification Opportunities for Spectrum Brands and Target

0.65

Correlation Coefficient

Spectrum Brands  Target

Poor diversification

The 3 months correlation between Spectrum and Target is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 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 Spectrum Brands i.e., Spectrum Brands and Target go up and down completely randomly.

Pair Corralation between Spectrum Brands and Target

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to under-perform the Target. In addition to that, Spectrum Brands is 1.09 times more volatile than Target. It trades about -0.26 of its total potential returns per unit of risk. Target is currently generating about -0.02 per unit of volatility. If you would invest  16,821  in Target on January 19, 2024 and sell it today you would lose (108.00) from holding Target or give up 0.64% of portfolio value over 90 days.

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

Spectrum Brands Holdings  vs.  Target

Spectrum Brands Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spectrum Brands Holdings are ranked lower than 2 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Target

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Target unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spectrum Brands and Target

The main advantage of trading using opposite Spectrum Brands and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spectrum Brands 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 Spectrum Brands 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.