Correlation Between LOreal SA and Danone SA

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

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

Diversification Opportunities for LOreal SA and Danone SA

0.64

Correlation Coefficient

LOreal SA  Danone SA

Poor diversification

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

Pair Corralation between LOreal SA and Danone SA

Assuming the 90 days horizon LOreal SA is expected to generate 3.27 times less return on investment than Danone SA. In addition to that, LOreal SA is 1.32 times more volatile than Danone SA. It trades about 0.03 of its total potential returns per unit of risk. Danone SA is currently generating about 0.13 per unit of volatility. If you would invest  6,450  in Danone SA on December 29, 2024 and sell it today you would earn a total of  632.00  from holding Danone SA or generate 9.8% return on investment over 90 days.

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

LOreal SA  vs.  Danone SA

LOreal SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LOreal SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Danone SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with LOreal SA and Danone SA

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

The idea behind LOreal SA and Danone 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 Stocks Directory module to find actively traded stocks across global markets.