Correlation Between Estee Lauder and Sealed Air

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

Diversification Opportunities for Estee Lauder and Sealed Air

0.05

Correlation Coefficient

Estee Lauder  Sealed Air

Significant diversification

The 3 months correlation between Estee and Sealed is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Sealed Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sealed Air 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 Sealed Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sealed Air has no effect on the direction of Estee Lauder i.e., Estee Lauder and Sealed Air go up and down completely randomly.

Pair Corralation between Estee Lauder and Sealed Air

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Sealed Air. In addition to that, Estee Lauder is 1.32 times more volatile than Sealed Air. It trades about -0.08 of its total potential returns per unit of risk. Sealed Air is currently generating about -0.03 per unit of volatility. If you would invest  5,059  in Sealed Air on September 29, 2024 and sell it today you would lose (1,633) from holding Sealed Air or give up 32.28% 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.  Sealed Air

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.

Sealed Air

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sealed Air has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Sealed Air is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Estee Lauder and Sealed Air

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

The idea behind Estee Lauder Companies and Sealed Air 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.