Correlation Between Societe LDC and Interparfums

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

By analyzing existing cross correlation between Societe LDC SA and Interparfums SA, you can compare the effects of market volatilities on Societe LDC and Interparfums 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 Societe LDC with a short position of Interparfums. Check out your portfolio center. Please also check ongoing floating volatility patterns of Societe LDC and Interparfums.

Diversification Opportunities for Societe LDC and Interparfums

-0.13

Correlation Coefficient

Societe LDC  Interparfums

Good diversification

The 3 months correlation between Societe and Interparfums is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Societe LDC SA and Interparfums SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interparfums SA and Societe LDC 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 Societe LDC SA are associated (or correlated) with Interparfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interparfums SA has no effect on the direction of Societe LDC i.e., Societe LDC and Interparfums go up and down completely randomly.

Pair Corralation between Societe LDC and Interparfums

Assuming the 90 days trading horizon Societe LDC is expected to generate 1.4 times less return on investment than Interparfums. In addition to that, Societe LDC is 1.01 times more volatile than Interparfums SA. It trades about 0.07 of its total potential returns per unit of risk. Interparfums SA is currently generating about 0.09 per unit of volatility. If you would invest  3,965  in Interparfums SA on November 27, 2024 and sell it today you would earn a total of  305.00  from holding Interparfums SA or generate 7.69% return on investment over 90 days.

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

Societe LDC SA  vs.  Interparfums SA

Societe LDC SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Societe LDC SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Societe LDC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Interparfums SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Interparfums SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Interparfums may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Societe LDC and Interparfums

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

The idea behind Societe LDC SA and Interparfums SA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.