Correlation Between EssilorLuxottica and Coloplast A/S

Can any of the company-specific risk be diversified away by investing in both EssilorLuxottica and Coloplast A/S 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 EssilorLuxottica and Coloplast A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EssilorLuxottica Socit anonyme and Coloplast AS, you can compare the effects of market volatilities on EssilorLuxottica and Coloplast A/S 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 EssilorLuxottica with a short position of Coloplast A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of EssilorLuxottica and Coloplast A/S.

Diversification Opportunities for EssilorLuxottica and Coloplast A/S

-0.32

Correlation Coefficient

EssilorLuxottica  Coloplast A/S

Very good diversification

The 3 months correlation between EssilorLuxottica and Coloplast is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding EssilorLuxottica Socit anonyme and Coloplast AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coloplast A/S and EssilorLuxottica 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 EssilorLuxottica Socit anonyme are associated (or correlated) with Coloplast A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coloplast A/S has no effect on the direction of EssilorLuxottica i.e., EssilorLuxottica and Coloplast A/S go up and down completely randomly.

Pair Corralation between EssilorLuxottica and Coloplast A/S

Assuming the 90 days horizon EssilorLuxottica Socit anonyme is expected to generate 1.87 times more return on investment than Coloplast A/S. However, EssilorLuxottica is 1.87 times more volatile than Coloplast AS. It trades about 0.22 of its potential returns per unit of risk. Coloplast AS is currently generating about -0.12 per unit of risk. If you would invest  27,425  in EssilorLuxottica Socit anonyme on December 1, 2024 and sell it today you would earn a total of  2,322  from holding EssilorLuxottica Socit anonyme or generate 8.47% return on investment over 90 days.

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

EssilorLuxottica Socit anonyme  vs.  Coloplast AS

EssilorLuxottica Socit

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EssilorLuxottica Socit anonyme are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, EssilorLuxottica reported solid returns over the last few months and may actually be approaching a breakup point.

Coloplast A/S

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coloplast AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EssilorLuxottica and Coloplast A/S

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

The idea behind EssilorLuxottica Socit anonyme and Coloplast AS 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.