Correlation Between Hermes International and Prada SpA

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

Diversification Opportunities for Hermes International and Prada SpA

0.41

Correlation Coefficient

Hermes International  Prada SpA

Very weak diversification

The 3 months correlation between Hermes and Prada is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SA and Prada SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prada SpA 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 Prada SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prada SpA has no effect on the direction of Hermes International i.e., Hermes International and Prada SpA go up and down completely randomly.

Pair Corralation between Hermes International and Prada SpA

Assuming the 90 days horizon Hermes International SA is expected to generate 0.46 times more return on investment than Prada SpA. However, Hermes International SA is 2.18 times less risky than Prada SpA. It trades about 0.1 of its potential returns per unit of risk. Prada SpA 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	Weak
Accuracy	98.36%
Values	Daily Returns

Hermes International SA  vs.  Prada SpA

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.

Prada SpA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prada SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Prada SpA 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 Prada SpA

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

The idea behind Hermes International SA and Prada SpA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.