Correlation Between European Wax and United Guardian

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

By analyzing existing cross correlation between European Wax Center and United Guardian, you can compare the effects of market volatilities on European Wax and United Guardian 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 European Wax with a short position of United Guardian. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Wax and United Guardian.

Diversification Opportunities for European Wax and United Guardian

0.22

Correlation Coefficient

European Wax  United Guardian

Modest diversification

The 3 months correlation between European and United is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding European Wax Center and United Guardian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Guardian and European Wax 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 European Wax Center are associated (or correlated) with United Guardian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Guardian has no effect on the direction of European Wax i.e., European Wax and United Guardian go up and down completely randomly.

Pair Corralation between European Wax and United Guardian

Given the investment horizon of 90 days European Wax Center is expected to under-perform the United Guardian. In addition to that, European Wax is 1.42 times more volatile than United Guardian. It trades about -0.2 of its total potential returns per unit of risk. United Guardian is currently generating about 0.17 per unit of volatility. If you would invest  785.00  in United Guardian on January 29, 2024 and sell it today you would earn a total of  42.00  from holding United Guardian or generate 5.35% return on investment over 90 days.

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

European Wax Center  vs.  United Guardian

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.

United Guardian

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Guardian are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, United Guardian reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Wax and United Guardian

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

The idea behind European Wax Center and United Guardian 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.