Correlation Between Swatch and LVMH Mot

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

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

Diversification Opportunities for Swatch and LVMH Mot

0.53

Correlation Coefficient

Swatch  LVMH Mot

Very weak diversification

The 3 months correlation between Swatch and LVMH is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding The Swatch Group and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Swatch 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 The Swatch Group are associated (or correlated) with LVMH Mot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Swatch i.e., Swatch and LVMH Mot go up and down completely randomly.

Pair Corralation between Swatch and LVMH Mot

Assuming the 90 days trading horizon Swatch is expected to generate 22.72 times less return on investment than LVMH Mot. In addition to that, Swatch is 1.97 times more volatile than LVMH Mot Hennessy. It trades about 0.01 of its total potential returns per unit of risk. LVMH Mot Hennessy is currently generating about 0.24 per unit of volatility. If you would invest  58,080  in LVMH Mot Hennessy on September 23, 2024 and sell it today you would earn a total of  4,860  from holding LVMH Mot Hennessy or generate 8.37% return on investment over 90 days.

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

The Swatch Group  vs.  LVMH Mot Hennessy

Swatch Group

Risk-Adjusted Performance

3 of 100

Insignificant

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

LVMH Mot Hennessy

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Swatch and LVMH Mot

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

The idea behind The Swatch Group and LVMH Mot Hennessy 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.