Correlation Between LOreal Co and LOral SA

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

Diversification Opportunities for LOreal Co and LOral SA

0.98

Correlation Coefficient

LOreal Co  LOral SA

Almost no diversification

The 3 months correlation between LOreal and LOral is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOral SA 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 LOral SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOral SA has no effect on the direction of LOreal Co i.e., LOreal Co and LOral SA go up and down completely randomly.

Pair Corralation between LOreal Co and LOral SA

Assuming the 90 days horizon LOreal Co ADR is expected to generate 0.51 times more return on investment than LOral SA. However, LOreal Co ADR is 1.97 times less risky than LOral SA. It trades about 0.24 of its potential returns per unit of risk. LOral SA is currently generating about 0.09 per unit of risk. If you would invest  6,845  in LOreal Co ADR on September 17, 2024 and sell it today you would earn a total of  341.00  from holding LOreal Co ADR or generate 4.98% return on investment over 90 days.

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

LOreal Co ADR  vs.  LOral SA

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.

LOral SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOral SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with LOreal Co and LOral SA

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

The idea behind LOreal Co ADR and LOral 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .