Correlation Between LOréal SA and L’Oreal Co

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

By analyzing existing cross correlation between LOral SA and LOreal Co ADR, you can compare the effects of market volatilities on LOréal SA and L’Oreal Co 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 L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOréal SA and L’Oreal Co.

Diversification Opportunities for LOréal SA and L’Oreal Co

0.95

Correlation Coefficient

LOréal SA  L’Oreal Co

Almost no diversification

The 3 months correlation between LOréal and L’Oreal is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding LOral SA and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR 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 L’Oreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of LOréal SA i.e., LOréal SA and L’Oreal Co go up and down completely randomly.

Pair Corralation between LOréal SA and L’Oreal Co

Assuming the 90 days horizon LOral SA is expected to generate 1.51 times more return on investment than L’Oreal Co. However, LOréal SA is 1.51 times more volatile than LOreal Co ADR. It trades about 0.06 of its potential returns per unit of risk. LOreal Co ADR is currently generating about 0.06 per unit of risk. If you would invest  35,743  in LOral SA on December 26, 2024 and sell it today you would earn a total of  2,811  from holding LOral SA or generate 7.86% return on investment over 90 days.

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

LOral SA  vs.  LOreal Co ADR

LOréal SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LOral SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental indicators, LOréal SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

LOreal Co ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LOreal Co ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, L’Oreal Co may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with LOréal SA and L’Oreal Co

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

The idea behind LOral SA and LOreal Co ADR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.