Correlation Between LVMH Mot and LOreal SA

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

Diversification Opportunities for LVMH Mot and LOreal SA

0.75

Correlation Coefficient

LVMH Mot  LOreal SA

Poor diversification

The 3 months correlation between LVMH and LOreal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and LOreal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal 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 LOreal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal SA has no effect on the direction of LVMH Mot i.e., LVMH Mot and LOreal SA go up and down completely randomly.

Pair Corralation between LVMH Mot and LOreal SA

Assuming the 90 days horizon LVMH Mot Hennessy is expected to under-perform the LOreal SA. In addition to that, LVMH Mot is 1.01 times more volatile than LOreal SA. It trades about -0.17 of its total potential returns per unit of risk. LOreal SA is currently generating about -0.12 per unit of volatility. If you would invest  36,760  in LOreal SA on November 29, 2024 and sell it today you would lose (1,705) from holding LOreal SA or give up 4.64% 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.  LOreal SA

LVMH Mot Hennessy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LVMH Mot Hennessy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LVMH Mot sustained solid returns over the last few months and may actually be approaching a breakup point.

LOreal SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LOreal SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LOreal SA may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with LVMH Mot and LOreal SA

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

The idea behind LVMH Mot Hennessy and LOreal 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.