Correlation Between Clorox and L’Oreal Co

Can any of the company-specific risk be diversified away by investing in both Clorox and L’Oreal Co 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 Clorox and L’Oreal Co into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Clorox and LOreal Co ADR, you can compare the effects of market volatilities on Clorox and L’Oreal Co 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 Clorox with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clorox and L’Oreal Co.

Diversification Opportunities for Clorox and L’Oreal Co

-0.5

Correlation Coefficient

Clorox  L’Oreal Co

Very good diversification

The 3 months correlation between Clorox and L’Oreal is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding The Clorox and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR and Clorox 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 The Clorox are associated (or correlated) with L’Oreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of Clorox i.e., Clorox and L’Oreal Co go up and down completely randomly.

Pair Corralation between Clorox and L’Oreal Co

Considering the 90-day investment horizon The Clorox is expected to under-perform the L’Oreal Co. But the stock apears to be less risky and, when comparing its historical volatility, The Clorox is 1.02 times less risky than L’Oreal Co. The stock trades about -0.12 of its potential returns per unit of risk. The LOreal Co ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,170  in LOreal Co ADR on December 27, 2024 and sell it today you would earn a total of  164.00  from holding LOreal Co ADR or generate 2.29% return on investment over 90 days.

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

The Clorox  vs.  LOreal Co ADR

Clorox

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Clorox has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LOreal Co ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LOreal Co ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, L’Oreal Co is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Clorox and L’Oreal Co

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

The idea behind The Clorox and LOreal Co ADR 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.