Correlation Between Estee Lauder and Transocean

Can any of the company-specific risk be diversified away by investing in both Estee Lauder and Transocean 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 Transocean 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 Transocean, you can compare the effects of market volatilities on Estee Lauder and Transocean 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 Transocean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Transocean.

Diversification Opportunities for Estee Lauder and Transocean

0.01

Correlation Coefficient

Estee Lauder  Transocean

Significant diversification

The 3 months correlation between Estee and Transocean is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Estee Lauder i.e., Estee Lauder and Transocean go up and down completely randomly.

Pair Corralation between Estee Lauder and Transocean

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to generate 0.71 times more return on investment than Transocean. However, Estee Lauder Companies is 1.4 times less risky than Transocean. It trades about -0.1 of its potential returns per unit of risk. Transocean is currently generating about -0.35 per unit of risk. If you would invest  7,748  in Estee Lauder Companies on October 4, 2024 and sell it today you would lose (250.00) from holding Estee Lauder Companies or give up 3.23% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  Transocean

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 February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Estee Lauder and Transocean

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

The idea behind Estee Lauder Companies and Transocean 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.