Correlation Between ELF Beauty and United Guardian

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

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

Diversification Opportunities for ELF Beauty and United Guardian

-0.46

Correlation Coefficient

ELF Beauty  United Guardian

Very good diversification

The 3 months correlation between ELF and United is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and United Guardian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Guardian 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 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 ELF Beauty i.e., ELF Beauty and United Guardian go up and down completely randomly.

Pair Corralation between ELF Beauty and United Guardian

Considering the 90-day investment horizon ELF Beauty is expected to generate 1.01 times more return on investment than United Guardian. However, ELF Beauty is 1.01 times more volatile than United Guardian. It trades about 0.13 of its potential returns per unit of risk. United Guardian is currently generating about 0.06 per unit of risk. If you would invest  10,541  in ELF Beauty on August 10, 2024 and sell it today you would earn a total of  1,066  from holding ELF Beauty or generate 10.11% return on investment over 90 days.

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

ELF Beauty  vs.  United Guardian

ELF Beauty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ELF Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

United Guardian

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Guardian are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, United Guardian may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ELF Beauty and United Guardian

The main advantage of trading using opposite ELF Beauty and United Guardian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ELF Beauty 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 ELF Beauty 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.

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.