Correlation Between Hermes International and LVMH Moët

Can any of the company-specific risk be diversified away by investing in both Hermes International and LVMH Moët 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 LVMH Moët 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 LVMH Mot Hennessy, you can compare the effects of market volatilities on Hermes International and LVMH Moët 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 LVMH Moët. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hermes International and LVMH Moët.

Diversification Opportunities for Hermes International and LVMH Moët

0.7

Correlation Coefficient

Hermes International  LVMH Moët

Poor diversification

The 3 months correlation between Hermes and LVMH is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SA and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy 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 LVMH Moët. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Hermes International i.e., Hermes International and LVMH Moët go up and down completely randomly.

Pair Corralation between Hermes International and LVMH Moët

Assuming the 90 days horizon Hermes International SA is expected to generate 0.77 times more return on investment than LVMH Moët. However, Hermes International SA is 1.3 times less risky than LVMH Moët. It trades about 0.1 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about -0.02 per unit of risk. If you would invest  23,999  in Hermes International SA on December 29, 2024 and sell it today you would earn a total of  2,394  from holding Hermes International SA or generate 9.98% return on investment over 90 days.

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

Hermes International SA  vs.  LVMH Mot Hennessy

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.

LVMH Mot Hennessy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hermes International and LVMH Moët

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

The idea behind Hermes International SA and LVMH Mot Hennessy 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.