Correlation Between LOreal SA and Baikowski SASU

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

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

Diversification Opportunities for LOreal SA and Baikowski SASU

0.42

Correlation Coefficient

LOreal SA  Baikowski SASU

Very weak diversification

The 3 months correlation between LOreal and Baikowski is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and Baikowski SASU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baikowski SASU and LOreal SA 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 SA are associated (or correlated) with Baikowski SASU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baikowski SASU has no effect on the direction of LOreal SA i.e., LOreal SA and Baikowski SASU go up and down completely randomly.

Pair Corralation between LOreal SA and Baikowski SASU

Assuming the 90 days horizon LOreal SA is expected to generate 0.65 times more return on investment than Baikowski SASU. However, LOreal SA is 1.55 times less risky than Baikowski SASU. It trades about -0.2 of its potential returns per unit of risk. Baikowski SASU is currently generating about -0.17 per unit of risk. If you would invest  39,155  in LOreal SA on September 13, 2024 and sell it today you would lose (5,005) from holding LOreal SA or give up 12.78% of portfolio value over 90 days.

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

LOreal SA  vs.  Baikowski SASU

LOreal SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LOreal SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Baikowski SASU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baikowski SASU has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with LOreal SA and Baikowski SASU

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

The idea behind LOreal SA and Baikowski SASU 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.