Correlation Between LOréal SA and Inter Parfums

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

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

Diversification Opportunities for LOréal SA and Inter Parfums

-0.24

Correlation Coefficient

LOréal SA  Inter Parfums

Very good diversification

The 3 months correlation between LOréal and Inter is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding LOral SA and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums and LOréal SA 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 LOral SA are associated (or correlated) with Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of LOréal SA i.e., LOréal SA and Inter Parfums go up and down completely randomly.

Pair Corralation between LOréal SA and Inter Parfums

Assuming the 90 days horizon LOral SA is expected to generate 1.23 times more return on investment than Inter Parfums. However, LOréal SA is 1.23 times more volatile than Inter Parfums. It trades about 0.04 of its potential returns per unit of risk. Inter Parfums is currently generating about -0.04 per unit of risk. If you would invest  35,141  in LOral SA on December 28, 2024 and sell it today you would earn a total of  1,299  from holding LOral SA or generate 3.7% return on investment over 90 days.

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

LOral SA  vs.  Inter Parfums

LOréal SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LOral SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, LOréal SA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Inter Parfums

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inter Parfums has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Inter Parfums is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with LOréal SA and Inter Parfums

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

The idea behind LOral SA and Inter Parfums 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .