Correlation Between LVMH Mot and Fountaine Pajo

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

Diversification Opportunities for LVMH Mot and Fountaine Pajo

0.64

Correlation Coefficient

LVMH Mot  Fountaine Pajo

Poor diversification

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

Pair Corralation between LVMH Mot and Fountaine Pajo

Assuming the 90 days horizon LVMH Mot Hennessy is expected to generate 1.22 times more return on investment than Fountaine Pajo. However, LVMH Mot is 1.22 times more volatile than Fountaine Pajo. It trades about -0.02 of its potential returns per unit of risk. Fountaine Pajo is currently generating about -0.09 per unit of risk. If you would invest  63,663  in LVMH Mot Hennessy on September 4, 2024 and sell it today you would lose (3,053) from holding LVMH Mot Hennessy or give up 4.8% 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.  Fountaine Pajo

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 somewhat strong basic indicators, LVMH Mot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fountaine Pajo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fountaine Pajo has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with LVMH Mot and Fountaine Pajo

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

The idea behind LVMH Mot Hennessy and Fountaine Pajo 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.