Correlation Between Hermès International and Swatch Group

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

Diversification Opportunities for Hermès International and Swatch Group

-0.18

Correlation Coefficient

Hermès International  Swatch Group

Good diversification

The 3 months correlation between Hermès and Swatch is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Herms International Socit and The Swatch Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group 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 Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group has no effect on the direction of Hermès International i.e., Hermès International and Swatch Group go up and down completely randomly.

Pair Corralation between Hermès International and Swatch Group

Assuming the 90 days horizon Herms International Socit is expected to generate 0.49 times more return on investment than Swatch Group. However, Herms International Socit is 2.06 times less risky than Swatch Group. It trades about 0.05 of its potential returns per unit of risk. The Swatch Group is currently generating about -0.02 per unit of risk. If you would invest  184,698  in Herms International Socit on October 4, 2024 and sell it today you would earn a total of  46,902  from holding Herms International Socit or generate 25.39% return on investment over 90 days.

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

Herms International Socit  vs.  The Swatch Group

Herms International Socit

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Herms International Socit are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hermès International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Swatch Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Swatch Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Hermès International and Swatch Group

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

The idea behind Herms International Socit and The Swatch Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.