Correlation Between Icape Holding and LVMH Mot

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

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

Diversification Opportunities for Icape Holding and LVMH Mot

0.47

Correlation Coefficient

Icape Holding  LVMH Mot

Very weak diversification

The 3 months correlation between Icape and LVMH is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Icape Holding 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 Icape Holding 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 Icape Holding 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 Icape Holding i.e., Icape Holding and LVMH Mot go up and down completely randomly.

Pair Corralation between Icape Holding and LVMH Mot

Assuming the 90 days trading horizon Icape Holding is expected to under-perform the LVMH Mot. In addition to that, Icape Holding is 1.8 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 0.0 per unit of volatility. If you would invest  80,130  in LVMH Mot Hennessy on October 25, 2024 and sell it today you would lose (8,750) from holding LVMH Mot Hennessy or give up 10.92% of portfolio value over 90 days.

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

Icape Holding  vs.  LVMH Mot Hennessy

Icape Holding

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Icape Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Icape Holding reported solid returns over the last few months and may actually be approaching a breakup point.

LVMH Mot Hennessy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LVMH Mot Hennessy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LVMH Mot sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Icape Holding and LVMH Mot

The main advantage of trading using opposite Icape Holding and LVMH Mot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Icape Holding 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 Icape Holding 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.