Correlation Between Prada Spa and Hermes International

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

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

Diversification Opportunities for Prada Spa and Hermes International

0.33

Correlation Coefficient

Prada Spa  Hermes International

Weak diversification

The 3 months correlation between Prada and Hermes is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Prada Spa PK and Hermes International SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International and Prada Spa 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 Prada Spa PK are associated (or correlated) with Hermes International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hermes International has no effect on the direction of Prada Spa i.e., Prada Spa and Hermes International go up and down completely randomly.

Pair Corralation between Prada Spa and Hermes International

Assuming the 90 days horizon Prada Spa PK is expected to under-perform the Hermes International. In addition to that, Prada Spa is 1.97 times more volatile than Hermes International SA. It trades about -0.08 of its total potential returns per unit of risk. Hermes International SA is currently generating about 0.1 per unit of volatility. If you would invest  23,999  in Hermes International SA on December 29, 2024 and sell it today you would earn a total of  2,394  from holding Hermes International SA or generate 9.98% return on investment over 90 days.

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

Prada Spa PK  vs.  Hermes International SA

Prada Spa PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prada Spa PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hermes International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Hermes International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Prada Spa and Hermes International

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

The idea behind Prada Spa PK and Hermes International 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.