Correlation Between LOreal Co and Clorox

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

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

Diversification Opportunities for LOreal Co and Clorox

-0.65

Correlation Coefficient

LOreal Co  Clorox

Excellent diversification

The 3 months correlation between LOreal and Clorox is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox and LOreal Co 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 Co ADR are associated (or correlated) with Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of LOreal Co i.e., LOreal Co and Clorox go up and down completely randomly.

Pair Corralation between LOreal Co and Clorox

Assuming the 90 days horizon LOreal Co ADR is expected to under-perform the Clorox. In addition to that, LOreal Co is 1.25 times more volatile than The Clorox. It trades about -0.07 of its total potential returns per unit of risk. The Clorox is currently generating about 0.06 per unit of volatility. If you would invest  13,726  in The Clorox on September 17, 2024 and sell it today you would earn a total of  2,764  from holding The Clorox or generate 20.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

LOreal Co ADR  vs.  The Clorox

LOreal Co ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal Co ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Clorox

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Clorox are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Clorox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LOreal Co and Clorox

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

The idea behind LOreal Co ADR and The Clorox 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.