Correlation Between LVMH Mot and Europlasma

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

By analyzing existing cross correlation between LVMH Mot Hennessy and Europlasma SA, you can compare the effects of market volatilities on LVMH Mot and Europlasma 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 LVMH Mot with a short position of Europlasma. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Mot and Europlasma.

Diversification Opportunities for LVMH Mot and Europlasma

0.64

Correlation Coefficient

LVMH Mot  Europlasma

Poor diversification

The 3 months correlation between LVMH and Europlasma is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Europlasma SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europlasma SA and LVMH Mot 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 LVMH Mot Hennessy are associated (or correlated) with Europlasma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europlasma SA has no effect on the direction of LVMH Mot i.e., LVMH Mot and Europlasma go up and down completely randomly.

Pair Corralation between LVMH Mot and Europlasma

Assuming the 90 days horizon LVMH Mot Hennessy is expected to generate 0.07 times more return on investment than Europlasma. However, LVMH Mot Hennessy is 15.14 times less risky than Europlasma. It trades about -0.04 of its potential returns per unit of risk. Europlasma SA is currently generating about -0.02 per unit of risk. If you would invest  80,393  in LVMH Mot Hennessy on August 31, 2024 and sell it today you would lose (21,143) from holding LVMH Mot Hennessy or give up 26.3% of portfolio value over 90 days.

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

LVMH Mot Hennessy  vs.  Europlasma SA

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LVMH Mot Hennessy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Europlasma SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Europlasma SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Europlasma reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LVMH Mot and Europlasma

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

The idea behind LVMH Mot Hennessy and Europlasma 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.