Correlation Between Estee Lauder and Toro

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

Diversification Opportunities for Estee Lauder and Toro

0.09

Correlation Coefficient

Estee Lauder  Toro

Significant diversification

The 3 months correlation between Estee and Toro is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro 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 Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of Estee Lauder i.e., Estee Lauder and Toro go up and down completely randomly.

Pair Corralation between Estee Lauder and Toro

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Toro. In addition to that, Estee Lauder is 2.76 times more volatile than Toro Co. It trades about 0.0 of its total potential returns per unit of risk. Toro Co is currently generating about 0.06 per unit of volatility. If you would invest  8,436  in Toro Co on September 14, 2024 and sell it today you would earn a total of  395.00  from holding Toro Co or generate 4.68% 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.  Toro Co

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 quite persistent essential indicators, Estee Lauder is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Toro

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Toro Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Toro 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 Toro

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

The idea behind Estee Lauder Companies and Toro Co 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.