Correlation Between LOREAL ADR and Unicharm

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

By analyzing existing cross correlation between LOREAL ADR 15EO and Unicharm, you can compare the effects of market volatilities on LOREAL ADR and Unicharm 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 LOREAL ADR with a short position of Unicharm. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOREAL ADR and Unicharm.

Diversification Opportunities for LOREAL ADR and Unicharm

0.87

Correlation Coefficient

LOREAL ADR  Unicharm

Very poor diversification

The 3 months correlation between LOREAL and Unicharm is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding LOREAL ADR 15EO and Unicharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unicharm and LOREAL ADR 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 LOREAL ADR 15EO are associated (or correlated) with Unicharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unicharm has no effect on the direction of LOREAL ADR i.e., LOREAL ADR and Unicharm go up and down completely randomly.

Pair Corralation between LOREAL ADR and Unicharm

Assuming the 90 days trading horizon LOREAL ADR 15EO is expected to generate 0.64 times more return on investment than Unicharm. However, LOREAL ADR 15EO is 1.56 times less risky than Unicharm. It trades about -0.01 of its potential returns per unit of risk. Unicharm is currently generating about -0.02 per unit of risk. If you would invest  7,572  in LOREAL ADR 15EO on October 5, 2024 and sell it today you would lose (872.00) from holding LOREAL ADR 15EO or give up 11.52% of portfolio value over 90 days.

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

LOREAL ADR 15EO  vs.  Unicharm

LOREAL ADR 15EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOREAL ADR 15EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Unicharm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unicharm has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with LOREAL ADR and Unicharm

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

The idea behind LOREAL ADR 15EO and Unicharm 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 Global Correlations module to find global opportunities by holding instruments from different markets.