Correlation Between LOreal Co and Heineken

Can any of the company-specific risk be diversified away by investing in both LOreal Co and Heineken 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 Heineken 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 Heineken NV, you can compare the effects of market volatilities on LOreal Co and Heineken 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 Heineken. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOreal Co and Heineken.

Diversification Opportunities for LOreal Co and Heineken

0.87

Correlation Coefficient

LOreal Co  Heineken

Very poor diversification

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

Pair Corralation between LOreal Co and Heineken

Assuming the 90 days horizon LOreal Co ADR is expected to generate 1.12 times more return on investment than Heineken. However, LOreal Co is 1.12 times more volatile than Heineken NV. It trades about -0.01 of its potential returns per unit of risk. Heineken NV is currently generating about -0.04 per unit of risk. If you would invest  8,070  in LOreal Co ADR on October 11, 2024 and sell it today you would lose (1,132) from holding LOreal Co ADR or give up 14.03% of portfolio value over 90 days.

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

LOreal Co ADR  vs.  Heineken NV

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 unfluctuating performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Heineken NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heineken NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LOreal Co and Heineken

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

The idea behind LOreal Co ADR and Heineken NV 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.