Correlation Between Kering SA and Compagnie Financiere

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

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

Diversification Opportunities for Kering SA and Compagnie Financiere

0.83

Correlation Coefficient

Kering SA  Compagnie Financiere

Very poor diversification

The 3 months correlation between Kering and Compagnie is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Kering SA and Compagnie Financiere Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financiere and Kering 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 Kering SA are associated (or correlated) with Compagnie Financiere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financiere has no effect on the direction of Kering SA i.e., Kering SA and Compagnie Financiere go up and down completely randomly.

Pair Corralation between Kering SA and Compagnie Financiere

Assuming the 90 days horizon Kering SA is expected to generate 1.65 times less return on investment than Compagnie Financiere. In addition to that, Kering SA is 1.34 times more volatile than Compagnie Financiere Richemont. It trades about 0.12 of its total potential returns per unit of risk. Compagnie Financiere Richemont is currently generating about 0.26 per unit of volatility. If you would invest  1,393  in Compagnie Financiere Richemont on November 28, 2024 and sell it today you would earn a total of  616.00  from holding Compagnie Financiere Richemont or generate 44.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.55%
Values	Daily Returns

Kering SA  vs.  Compagnie Financiere Richemont

Kering SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kering SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kering SA reported solid returns over the last few months and may actually be approaching a breakup point.

Compagnie Financiere

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financiere Richemont are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Compagnie Financiere showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kering SA and Compagnie Financiere

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

The idea behind Kering SA and Compagnie Financiere Richemont 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.