Correlation Between L’Oreal SA and Europa Metals
Can any of the company-specific risk be diversified away by investing in both L’Oreal SA and Europa Metals 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 L’Oreal SA and Europa Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LOreal SA and Europa Metals, you can compare the effects of market volatilities on L’Oreal SA and Europa Metals 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 L’Oreal SA with a short position of Europa Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal SA and Europa Metals.
Diversification Opportunities for L’Oreal SA and Europa Metals
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between L’Oreal and Europa is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and Europa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europa Metals and L’Oreal SA 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 LOreal SA are associated (or correlated) with Europa Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europa Metals has no effect on the direction of L’Oreal SA i.e., L’Oreal SA and Europa Metals go up and down completely randomly.
Pair Corralation between L’Oreal SA and Europa Metals
Assuming the 90 days trading horizon LOreal SA is expected to generate 0.17 times more return on investment than Europa Metals. However, LOreal SA is 6.04 times less risky than Europa Metals. It trades about -0.03 of its potential returns per unit of risk. Europa Metals is currently generating about -0.15 per unit of risk. If you would invest 35,715 in LOreal SA on December 2, 2024 and sell it today you would lose (497.00) from holding LOreal SA or give up 1.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOreal SA vs. Europa Metals
Performance |
| Timeline |
| L’Oreal SA |
| Europa Metals |
L’Oreal SA and Europa Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with L’Oreal SA and Europa Metals
The main advantage of trading using opposite L’Oreal SA and Europa Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L’Oreal SA position performs unexpectedly, Europa Metals 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 Europa Metals will offset losses from the drop in Europa Metals' long position.| L’Oreal SA vs. G5 Entertainment AB | ||
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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