Correlation Between LVMH Moët and Synchrony Financial

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

Diversification Opportunities for LVMH Moët and Synchrony Financial

0.6

Correlation Coefficient

LVMH Moët  Synchrony Financial

Poor diversification

The 3 months correlation between LVMH and Synchrony is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial and LVMH Moët 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 Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of LVMH Moët i.e., LVMH Moët and Synchrony Financial go up and down completely randomly.

Pair Corralation between LVMH Moët and Synchrony Financial

Assuming the 90 days trading horizon LVMH Mot Hennessy is expected to generate 1.03 times more return on investment than Synchrony Financial. However, LVMH Moët is 1.03 times more volatile than Synchrony Financial. It trades about 0.0 of its potential returns per unit of risk. Synchrony Financial is currently generating about -0.19 per unit of risk. If you would invest  12,400  in LVMH Mot Hennessy on December 21, 2024 and sell it today you would lose (100.00) from holding LVMH Mot Hennessy or give up 0.81% 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.  Synchrony Financial

LVMH Mot Hennessy

Risk-Adjusted Performance

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 nearly stable technical indicators, LVMH Moët is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Synchrony Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with LVMH Moët and Synchrony Financial

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

The idea behind LVMH Mot Hennessy and Synchrony Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.