Correlation Between Estee Lauder and Valhi

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

Diversification Opportunities for Estee Lauder and Valhi

0.36

Correlation Coefficient

Estee Lauder  Valhi

Weak diversification

The 3 months correlation between Estee and Valhi is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Estee Lauder i.e., Estee Lauder and Valhi go up and down completely randomly.

Pair Corralation between Estee Lauder and Valhi

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Valhi. But the stock apears to be less risky and, when comparing its historical volatility, Estee Lauder Companies is 1.34 times less risky than Valhi. The stock trades about -0.08 of its potential returns per unit of risk. The Valhi Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,233  in Valhi Inc on September 29, 2024 and sell it today you would lose (6.00) from holding Valhi Inc or give up 0.27% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  Valhi Inc

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.

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Estee Lauder and Valhi

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

The idea behind Estee Lauder Companies and Valhi Inc 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.