Correlation Between X FAB and LVMH Moët

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

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

Diversification Opportunities for X FAB and LVMH Moët

0.7

Correlation Coefficient

X FAB  LVMH Moët

Poor diversification

The 3 months correlation between XFB and LVMH is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries 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 X FAB 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 X FAB Silicon Foundries are associated (or correlated) with LVMH Moët. 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 X FAB i.e., X FAB and LVMH Moët go up and down completely randomly.

Pair Corralation between X FAB and LVMH Moët

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the LVMH Moët. In addition to that, X FAB is 1.39 times more volatile than LVMH Mot Hennessy. It trades about -0.03 of its total potential returns per unit of risk. LVMH Mot Hennessy is currently generating about 0.0 per unit of volatility. If you would invest  76,770  in LVMH Mot Hennessy on October 23, 2024 and sell it today you would lose (8,480) from holding LVMH Mot Hennessy or give up 11.05% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  LVMH Mot Hennessy

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

LVMH Mot Hennessy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LVMH Mot Hennessy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical indicators, LVMH Moët unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with X FAB and LVMH Moët

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

The idea behind X FAB Silicon Foundries 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.