Correlation Between Adomos SA and LVMH Mot

Can any of the company-specific risk be diversified away by investing in both Adomos SA and LVMH Mot 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 Adomos SA and LVMH Mot into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Adomos SA and LVMH Mot Hennessy, you can compare the effects of market volatilities on Adomos SA and LVMH Mot 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 Adomos SA with a short position of LVMH Mot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adomos SA and LVMH Mot.

Diversification Opportunities for Adomos SA and LVMH Mot

0.04

Correlation Coefficient

Adomos SA  LVMH Mot

Significant diversification

The 3 months correlation between Adomos and LVMH is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Adomos SA and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Adomos SA 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 Adomos SA are associated (or correlated) with LVMH Mot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Adomos SA i.e., Adomos SA and LVMH Mot go up and down completely randomly.

Pair Corralation between Adomos SA and LVMH Mot

Assuming the 90 days trading horizon Adomos SA is expected to under-perform the LVMH Mot. In addition to that, Adomos SA is 9.62 times more volatile than LVMH Mot Hennessy. It trades about -0.02 of its total potential returns per unit of risk. LVMH Mot Hennessy is currently generating about -0.05 per unit of volatility. If you would invest  72,025  in LVMH Mot Hennessy on September 24, 2024 and sell it today you would lose (9,215) from holding LVMH Mot Hennessy or give up 12.79% of portfolio value over 90 days.

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

Adomos SA  vs.  LVMH Mot Hennessy

Adomos SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Adomos SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Adomos SA reported solid returns over the last few months and may actually be approaching a breakup point.

LVMH Mot Hennessy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LVMH Mot Hennessy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LVMH Mot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adomos SA and LVMH Mot

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

The idea behind Adomos SA and LVMH Mot Hennessy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.