Correlation Between Hermes International and Signet Jewelers

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

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

Diversification Opportunities for Hermes International and Signet Jewelers

-0.69

Correlation Coefficient

Hermes International  Signet Jewelers

Excellent diversification

The 3 months correlation between Hermes and Signet is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SCA and Signet Jewelers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signet Jewelers and Hermes International 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 Hermes International SCA are associated (or correlated) with Signet Jewelers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signet Jewelers has no effect on the direction of Hermes International i.e., Hermes International and Signet Jewelers go up and down completely randomly.

Pair Corralation between Hermes International and Signet Jewelers

Assuming the 90 days horizon Hermes International SCA is expected to generate 0.66 times more return on investment than Signet Jewelers. However, Hermes International SCA is 1.52 times less risky than Signet Jewelers. It trades about 0.04 of its potential returns per unit of risk. Signet Jewelers is currently generating about 0.02 per unit of risk. If you would invest  176,784  in Hermes International SCA on October 9, 2024 and sell it today you would earn a total of  52,546  from holding Hermes International SCA or generate 29.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Hermes International SCA  vs.  Signet Jewelers

Hermes International SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hermes International SCA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hermes International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Signet Jewelers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signet Jewelers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Hermes International and Signet Jewelers

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

The idea behind Hermes International SCA and Signet Jewelers 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.