Correlation Between Reckitt Benckiser and Inter Parfums

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

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

Diversification Opportunities for Reckitt Benckiser and Inter Parfums

-0.29

Correlation Coefficient

Reckitt Benckiser  Inter Parfums

Very good diversification

The 3 months correlation between Reckitt and Inter is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums and Reckitt Benckiser 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 Reckitt Benckiser Group are associated (or correlated) with Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of Reckitt Benckiser i.e., Reckitt Benckiser and Inter Parfums go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Inter Parfums

Assuming the 90 days horizon Reckitt Benckiser is expected to generate 3.26 times less return on investment than Inter Parfums. But when comparing it to its historical volatility, Reckitt Benckiser Group is 1.45 times less risky than Inter Parfums. It trades about 0.15 of its potential returns per unit of risk. Inter Parfums is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  13,186  in Inter Parfums on October 25, 2024 and sell it today you would earn a total of  1,262  from holding Inter Parfums or generate 9.57% return on investment over 90 days.

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

Reckitt Benckiser Group  vs.  Inter Parfums

Reckitt Benckiser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reckitt Benckiser Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Reckitt Benckiser is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inter Parfums

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Parfums are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Inter Parfums reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reckitt Benckiser and Inter Parfums

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

The idea behind Reckitt Benckiser Group and Inter Parfums 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.