Correlation Between Hermès International and LVMH Mot

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

By analyzing existing cross correlation between Herms International Socit and LVMH Mot Hennessy, you can compare the effects of market volatilities on Hermès International and LVMH Mot 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 Hermès International with a short position of LVMH Mot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hermès International and LVMH Mot.

Diversification Opportunities for Hermès International and LVMH Mot

0.67

Correlation Coefficient

Hermès International  LVMH Mot

Poor diversification

The 3 months correlation between Hermès and LVMH is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Herms International Socit 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 Hermès 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 Herms International Socit are associated (or correlated) with LVMH Mot. 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 Hermès International i.e., Hermès International and LVMH Mot go up and down completely randomly.

Pair Corralation between Hermès International and LVMH Mot

Assuming the 90 days horizon Herms International Socit is expected to generate 0.9 times more return on investment than LVMH Mot. However, Herms International Socit is 1.11 times less risky than LVMH Mot. It trades about 0.16 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about 0.14 per unit of risk. If you would invest  220,400  in Herms International Socit on October 5, 2024 and sell it today you would earn a total of  8,900  from holding Herms International Socit or generate 4.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

Herms International Socit  vs.  LVMH Mot Hennessy

Herms International Socit

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Herms International Socit are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Hermès International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

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 basic indicators, LVMH Mot is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hermès International and LVMH Mot

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

The idea behind Herms International Socit 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 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.