Correlation Between Hermes International and EssilorLuxottica

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

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

Diversification Opportunities for Hermes International and EssilorLuxottica

0.82

Correlation Coefficient

Hermes International  EssilorLuxottica

Very poor diversification

The 3 months correlation between Hermes and EssilorLuxottica is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SCA and EssilorLuxottica S A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EssilorLuxottica S and Hermes International 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 Hermes International SCA are associated (or correlated) with EssilorLuxottica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EssilorLuxottica S has no effect on the direction of Hermes International i.e., Hermes International and EssilorLuxottica go up and down completely randomly.

Pair Corralation between Hermes International and EssilorLuxottica

Assuming the 90 days trading horizon Hermes International SCA is expected to generate 1.04 times more return on investment than EssilorLuxottica. However, Hermes International is 1.04 times more volatile than EssilorLuxottica S A. It trades about 0.29 of its potential returns per unit of risk. EssilorLuxottica S A is currently generating about 0.27 per unit of risk. If you would invest  216,033  in Hermes International SCA on December 1, 2024 and sell it today you would earn a total of  57,667  from holding Hermes International SCA or generate 26.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Hermes International SCA  vs.  EssilorLuxottica S A

Hermes International SCA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SCA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hermes International sustained solid returns over the last few months and may actually be approaching a breakup point.

EssilorLuxottica S

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EssilorLuxottica S A are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EssilorLuxottica sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hermes International and EssilorLuxottica

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

The idea behind Hermes International SCA and EssilorLuxottica S A 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.