Correlation Between Spectrum Brands and ELF Beauty

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

Diversification Opportunities for Spectrum Brands and ELF Beauty

-0.8

Correlation Coefficient

Spectrum Brands  ELF Beauty

Pay attention - limited upside

The 3 months correlation between Spectrum and ELF is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Brands Holdings and ELF Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELF Beauty 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 ELF Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELF Beauty has no effect on the direction of Spectrum Brands i.e., Spectrum Brands and ELF Beauty go up and down completely randomly.

Pair Corralation between Spectrum Brands and ELF Beauty

Considering the 90-day investment horizon Spectrum Brands Holdings is expected to under-perform the ELF Beauty. But the stock apears to be less risky and, when comparing its historical volatility, Spectrum Brands Holdings is 2.16 times less risky than ELF Beauty. The stock trades about -0.02 of its potential returns per unit of risk. The ELF Beauty is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,410  in ELF Beauty on April 15, 2025 and sell it today you would lose (412.00) from holding ELF Beauty or give up 3.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Spectrum Brands Holdings  vs.  ELF Beauty

Spectrum Brands Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spectrum Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

ELF Beauty

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, ELF Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spectrum Brands and ELF Beauty

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

The idea behind Spectrum Brands Holdings and ELF Beauty 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.