Correlation Between Swatch Group and Hermes International

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

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

Diversification Opportunities for Swatch Group and Hermes International

0.48

Correlation Coefficient

Swatch Group  Hermes International

Very weak diversification

The 3 months correlation between Swatch and Hermes is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Swatch Group AG 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 Swatch Group 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 Swatch Group AG 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 Swatch Group i.e., Swatch Group and Hermes International go up and down completely randomly.

Pair Corralation between Swatch Group and Hermes International

Assuming the 90 days horizon Swatch Group is expected to generate 2.73 times less return on investment than Hermes International. But when comparing it to its historical volatility, Swatch Group AG is 1.06 times less risky than Hermes International. It trades about 0.1 of its potential returns per unit of risk. Hermes International SCA is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  219,000  in Hermes International SCA on November 28, 2024 and sell it today you would earn a total of  67,053  from holding Hermes International SCA or generate 30.62% return on investment over 90 days.

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

Swatch Group AG  vs.  Hermes International SCA

Swatch Group AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swatch Group AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Swatch Group may actually be approaching a critical reversion point that can send shares even higher in March 2025.

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 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Hermes International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swatch Group and Hermes International

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

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.