Correlation Between Hermes International and Compagnie Financière

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

By analyzing existing cross correlation between Hermes International SA and Compagnie Financire Richemont, you can compare the effects of market volatilities on Hermes International and Compagnie Financière 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 Compagnie Financière. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hermes International and Compagnie Financière.

Diversification Opportunities for Hermes International and Compagnie Financière

0.97

Correlation Coefficient

Hermes International  Compagnie Financière

Almost no diversification

The 3 months correlation between Hermes and Compagnie is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SA and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financière 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 SA are associated (or correlated) with Compagnie Financière. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financière has no effect on the direction of Hermes International i.e., Hermes International and Compagnie Financière go up and down completely randomly.

Pair Corralation between Hermes International and Compagnie Financière

Assuming the 90 days horizon Hermes International is expected to generate 1.71 times less return on investment than Compagnie Financière. But when comparing it to its historical volatility, Hermes International SA is 1.79 times less risky than Compagnie Financière. It trades about 0.1 of its potential returns per unit of risk. Compagnie Financire Richemont is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  15,556  in Compagnie Financire Richemont on December 30, 2024 and sell it today you would earn a total of  2,554  from holding Compagnie Financire Richemont or generate 16.42% return on investment over 90 days.

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

Hermes International SA  vs.  Compagnie Financire Richemont

Hermes International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Hermes International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Compagnie Financière

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Compagnie Financière reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hermes International and Compagnie Financière

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

The idea behind Hermes International SA and Compagnie Financire Richemont 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.