Correlation Between ELF Beauty and Church Dwight

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

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

Diversification Opportunities for ELF Beauty and Church Dwight

0.53

Correlation Coefficient

ELF Beauty  Church Dwight

Very weak diversification

The 3 months correlation between ELF and Church is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and Church Dwight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Church Dwight and ELF 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 ELF Beauty are associated (or correlated) with Church Dwight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Church Dwight has no effect on the direction of ELF Beauty i.e., ELF Beauty and Church Dwight go up and down completely randomly.

Pair Corralation between ELF Beauty and Church Dwight

Considering the 90-day investment horizon ELF Beauty is expected to generate 4.03 times more return on investment than Church Dwight. However, ELF Beauty is 4.03 times more volatile than Church Dwight. It trades about 0.22 of its potential returns per unit of risk. Church Dwight is currently generating about 0.03 per unit of risk. If you would invest  6,779  in ELF Beauty on May 4, 2025 and sell it today you would earn a total of  4,863  from holding ELF Beauty or generate 71.74% return on investment over 90 days.

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

ELF Beauty  vs.  Church Dwight

ELF Beauty

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, ELF Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Church Dwight

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ELF Beauty and Church Dwight

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

The idea behind ELF Beauty and Church Dwight 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.