Correlation Between Signet Jewelers and Hermes International

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

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

Diversification Opportunities for Signet Jewelers and Hermes International

-0.69

Correlation Coefficient

Signet Jewelers  Hermes International

Excellent diversification

The 3 months correlation between Signet and Hermes is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Signet Jewelers and Hermes International SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International SCA and Signet Jewelers 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 Signet Jewelers 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 SCA has no effect on the direction of Signet Jewelers i.e., Signet Jewelers and Hermes International go up and down completely randomly.

Pair Corralation between Signet Jewelers and Hermes International

Considering the 90-day investment horizon Signet Jewelers is expected to generate 1.33 times less return on investment than Hermes International. In addition to that, Signet Jewelers is 1.52 times more volatile than Hermes International SCA. It trades about 0.02 of its total potential returns per unit of risk. Hermes International SCA is currently generating about 0.04 per unit of volatility. If you would invest  176,784  in Hermes International SCA on October 9, 2024 and sell it today you would earn a total of  52,546  from holding Hermes International SCA or generate 29.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Signet Jewelers  vs.  Hermes International SCA

Signet Jewelers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signet Jewelers 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 forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Hermes International SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hermes International SCA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hermes International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Signet Jewelers and Hermes International

The main advantage of trading using opposite Signet Jewelers and Hermes International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Signet Jewelers 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 Signet Jewelers and Hermes International SCA 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.