Correlation Between Danone SA and Interparfums

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

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

Diversification Opportunities for Danone SA and Interparfums

0.75

Correlation Coefficient

Danone SA  Interparfums

Poor diversification

The 3 months correlation between Danone and Interparfums is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Interparfums SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interparfums SA and Danone 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 Danone SA are associated (or correlated) with Interparfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interparfums SA has no effect on the direction of Danone SA i.e., Danone SA and Interparfums go up and down completely randomly.

Pair Corralation between Danone SA and Interparfums

Assuming the 90 days horizon Danone SA is expected to generate 0.48 times more return on investment than Interparfums. However, Danone SA is 2.07 times less risky than Interparfums. It trades about 0.13 of its potential returns per unit of risk. Interparfums SA is currently generating about 0.04 per unit of risk. If you would invest  6,744  in Danone SA on November 29, 2024 and sell it today you would earn a total of  172.00  from holding Danone SA or generate 2.55% return on investment over 90 days.

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

Danone SA  vs.  Interparfums SA

Danone SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Interparfums SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Interparfums SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Interparfums sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Danone SA and Interparfums

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

The idea behind Danone SA and Interparfums SA 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.