Correlation Between Estee Lauder and Reckitt Benckiser

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

By analyzing existing cross correlation between Estee Lauder Companies and Reckitt Benckiser Group, you can compare the effects of market volatilities on Estee Lauder and Reckitt Benckiser 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 Estee Lauder with a short position of Reckitt Benckiser. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Reckitt Benckiser.

Diversification Opportunities for Estee Lauder and Reckitt Benckiser

0.02

Correlation Coefficient

Estee Lauder  Reckitt Benckiser

Significant diversification

The 3 months correlation between Estee and Reckitt is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Reckitt Benckiser Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reckitt Benckiser and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with Reckitt Benckiser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reckitt Benckiser has no effect on the direction of Estee Lauder i.e., Estee Lauder and Reckitt Benckiser go up and down completely randomly.

Pair Corralation between Estee Lauder and Reckitt Benckiser

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to generate 2.27 times more return on investment than Reckitt Benckiser. However, Estee Lauder is 2.27 times more volatile than Reckitt Benckiser Group. It trades about 0.08 of its potential returns per unit of risk. Reckitt Benckiser Group is currently generating about -0.14 per unit of risk. If you would invest  7,283  in Estee Lauder Companies on September 27, 2024 and sell it today you would earn a total of  225.00  from holding Estee Lauder Companies or generate 3.09% return on investment over 90 days.

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

Estee Lauder Companies  vs.  Reckitt Benckiser Group

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Reckitt Benckiser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reckitt Benckiser Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Reckitt Benckiser is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Estee Lauder and Reckitt Benckiser

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

The idea behind Estee Lauder Companies and Reckitt Benckiser Group 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.