Correlation Between Bouygues and LOreal SA

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

By analyzing existing cross correlation between Bouygues SA and LOreal SA, you can compare the effects of market volatilities on Bouygues and LOreal SA 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 Bouygues with a short position of LOreal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bouygues and LOreal SA.

Diversification Opportunities for Bouygues and LOreal SA

0.58

Correlation Coefficient

Bouygues  LOreal SA

Very weak diversification

The 3 months correlation between Bouygues and LOreal is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Bouygues SA and LOreal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal SA and Bouygues 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 Bouygues SA are associated (or correlated) with LOreal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal SA has no effect on the direction of Bouygues i.e., Bouygues and LOreal SA go up and down completely randomly.

Pair Corralation between Bouygues and LOreal SA

Assuming the 90 days horizon Bouygues SA is expected to under-perform the LOreal SA. But the stock apears to be less risky and, when comparing its historical volatility, Bouygues SA is 1.41 times less risky than LOreal SA. The stock trades about -0.13 of its potential returns per unit of risk. The LOreal SA is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  36,780  in LOreal SA on September 23, 2024 and sell it today you would lose (3,085) from holding LOreal SA or give up 8.39% of portfolio value over 90 days.

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

Bouygues SA  vs.  LOreal SA

Bouygues SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bouygues SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LOreal SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bouygues and LOreal SA

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

The idea behind Bouygues SA and LOreal SA 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.