Correlation Between Pernod Ricard and LOreal SA

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

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

Diversification Opportunities for Pernod Ricard and LOreal SA

-0.01

Correlation Coefficient

Pernod Ricard  LOreal SA

Good diversification

The 3 months correlation between Pernod and LOreal is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Pernod Ricard SA and LOreal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal SA and Pernod Ricard 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 Pernod Ricard SA are associated (or correlated) with LOreal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal SA has no effect on the direction of Pernod Ricard i.e., Pernod Ricard and LOreal SA go up and down completely randomly.

Pair Corralation between Pernod Ricard and LOreal SA

Assuming the 90 days horizon Pernod Ricard SA is expected to under-perform the LOreal SA. In addition to that, Pernod Ricard is 1.2 times more volatile than LOreal SA. It trades about -0.11 of its total potential returns per unit of risk. LOreal SA is currently generating about 0.03 per unit of volatility. If you would invest  33,740  in LOreal SA on December 29, 2024 and sell it today you would earn a total of  770.00  from holding LOreal SA or generate 2.28% return on investment over 90 days.

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

Pernod Ricard SA  vs.  LOreal SA

Pernod Ricard SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pernod Ricard 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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.

Pair Trading with Pernod Ricard and LOreal SA

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

The idea behind Pernod Ricard SA and LOreal 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.