Correlation Between LOreal SA and NRJ

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

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

Diversification Opportunities for LOreal SA and NRJ

0.86

Correlation Coefficient

LOreal SA  NRJ

Very poor diversification

The 3 months correlation between LOreal and NRJ is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and NRJ Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRJ Group 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 NRJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRJ Group has no effect on the direction of LOreal SA i.e., LOreal SA and NRJ go up and down completely randomly.

Pair Corralation between LOreal SA and NRJ

Assuming the 90 days horizon LOreal SA is expected to under-perform the NRJ. In addition to that, LOreal SA is 1.06 times more volatile than NRJ Group. It trades about -0.07 of its total potential returns per unit of risk. NRJ Group is currently generating about 0.01 per unit of volatility. If you would invest  689.00  in NRJ Group on September 4, 2024 and sell it today you would earn a total of  5.00  from holding NRJ Group or generate 0.73% return on investment over 90 days.

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

LOreal SA  vs.  NRJ Group

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

NRJ Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRJ Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with LOreal SA and NRJ

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

The idea behind LOreal SA and NRJ Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.