Correlation Between Shiseido Company and LOréal SA

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

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

Diversification Opportunities for Shiseido Company and LOréal SA

0.71

Correlation Coefficient

Shiseido Company  LOréal SA

Poor diversification

The 3 months correlation between Shiseido and LOréal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Shiseido Company and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA and Shiseido Company 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 Shiseido Company are associated (or correlated) with LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Shiseido Company i.e., Shiseido Company and LOréal SA go up and down completely randomly.

Pair Corralation between Shiseido Company and LOréal SA

Assuming the 90 days horizon Shiseido Company is expected to generate 1.12 times more return on investment than LOréal SA. However, Shiseido Company is 1.12 times more volatile than LOral SA. It trades about 0.04 of its potential returns per unit of risk. LOral SA is currently generating about 0.05 per unit of risk. If you would invest  1,793  in Shiseido Company on December 28, 2024 and sell it today you would earn a total of  90.00  from holding Shiseido Company or generate 5.02% return on investment over 90 days.

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

Shiseido Company  vs.  LOral SA

Shiseido Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shiseido Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Shiseido Company may actually be approaching a critical reversion point that can send shares even higher in April 2025.

LOréal SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LOral SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, LOréal SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shiseido Company and LOréal SA

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

The idea behind Shiseido Company and LOral 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.