Correlation Between Danone SA and LOreal SA
Can any of the company-specific risk be diversified away by investing in both Danone SA and LOreal 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 Danone SA and LOreal SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Danone SA and LOreal SA, you can compare the effects of market volatilities on Danone SA and LOreal 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 Danone SA with a short position of LOreal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danone SA and LOreal SA.
Diversification Opportunities for Danone SA and LOreal SA
Poor diversification
The 3 months correlation between Danone and LOreal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and LOreal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal SA and Danone 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 Danone SA are associated (or correlated) with LOreal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal SA has no effect on the direction of Danone SA i.e., Danone SA and LOreal SA go up and down completely randomly.
Pair Corralation between Danone SA and LOreal SA
Assuming the 90 days horizon Danone SA is expected to generate 1.34 times less return on investment than LOreal SA. But when comparing it to its historical volatility, Danone SA is 1.43 times less risky than LOreal SA. It trades about 0.21 of its potential returns per unit of risk. LOreal SA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 33,800 in LOreal SA on November 5, 2024 and sell it today you would earn a total of 2,050 from holding LOreal SA or generate 6.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Danone SA vs. LOreal SA
Performance |
| Timeline |
| Danone SA |
| LOreal SA |
Danone SA and LOreal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Danone SA and LOreal SA
The main advantage of trading using opposite Danone SA and LOreal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danone SA position performs unexpectedly, LOreal 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 LOreal SA will offset losses from the drop in LOreal SA's long position.The idea behind Danone SA and LOreal 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.| LOreal SA vs. LVMH Mot Hennessy | LOreal SA vs. Danone SA | LOreal SA vs. Air Liquide SA | LOreal SA vs. Hermes International SCA |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device |