Correlation Between L’Oreal Co and Unicharm

Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and Unicharm 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 L’Oreal Co and Unicharm 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 Unicharm, you can compare the effects of market volatilities on L’Oreal Co and Unicharm 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 L’Oreal Co with a short position of Unicharm. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and Unicharm.

Diversification Opportunities for L’Oreal Co and Unicharm

0.85

Correlation Coefficient

L’Oreal Co  Unicharm

Very poor diversification

The 3 months correlation between L’Oreal and Unicharm is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Unicharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unicharm and L’Oreal 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 Unicharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unicharm has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and Unicharm go up and down completely randomly.

Pair Corralation between L’Oreal Co and Unicharm

Assuming the 90 days horizon LOreal Co ADR is expected to under-perform the Unicharm. But the pink sheet apears to be less risky and, when comparing its historical volatility, LOreal Co ADR is 21.5 times less risky than Unicharm. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Unicharm is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,166  in Unicharm on October 22, 2024 and sell it today you would lose (381.00) from holding Unicharm or give up 32.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.19%
Values	Daily Returns

LOreal Co ADR  vs.  Unicharm

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 unfluctuating 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.

Unicharm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unicharm has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with L’Oreal Co and Unicharm

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

The idea behind LOreal Co ADR and Unicharm 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.