Recent analysis of ten spin-offs from the past year reveals that parent companies generally outperform their spun-off counterparts. Elevated short interest in spin-offs, coupled with smaller free floats, contributes to this trend, suggesting that spin-offs may be more susceptible to market pressures and underperformance post-separation.

We looked at 10 spin-offs from last year. The parent and target are correlated but the parent outperform the target by 6% of a factor of 3%.

Part of this outperformance may be due to shorting the target, which may be difficult to do before the spinoff.

The percent of float shorted is higher on average for the target than the parent, mostly because of two cases.

The percent of float shorted of the parent is about the same before and after the spinoff.

The free float of the parent is higher, which may explain why the spin ii shorted more.

The other possibility is that the spin-offs are priced boo high before the spin-off and the stock sells off due to shorting. The borrow market is not developed before the spin unless derivatives are used.

The stocks with higher short positions tend to outperform.

The data indicates that spin-offs often experience higher short interest and possess smaller free floats compared to their parent companies, factors that may contribute to their relative underperformance. Investors should consider these dynamics when evaluating spin-off opportunities, as these structural characteristics can influence post-separation stock behavior.

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