Correlation Between Coty and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Coty and L’Oreal Co 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 Coty and L’Oreal Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coty Inc and LOreal Co ADR, you can compare the effects of market volatilities on Coty and L’Oreal Co 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 Coty with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coty and L’Oreal Co.
Diversification Opportunities for Coty and L’Oreal Co
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Coty and L’Oreal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR and Coty 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 Coty Inc are associated (or correlated) with L’Oreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of Coty i.e., Coty and L’Oreal Co go up and down completely randomly.
Pair Corralation between Coty and L’Oreal Co
Given the investment horizon of 90 days Coty is expected to generate 2.03 times less return on investment than L’Oreal Co. In addition to that, Coty is 1.26 times more volatile than LOreal Co ADR. It trades about 0.05 of its total potential returns per unit of risk. LOreal Co ADR is currently generating about 0.14 per unit of volatility. If you would invest 6,960 in LOreal Co ADR on November 7, 2024 and sell it today you would earn a total of 316.00 from holding LOreal Co ADR or generate 4.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coty Inc vs. LOreal Co ADR
Performance |
| Timeline |
| Coty Inc |
| LOreal Co ADR |
Coty and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coty and L’Oreal Co
The main advantage of trading using opposite Coty and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coty position performs unexpectedly, L’Oreal Co 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 L’Oreal Co will offset losses from the drop in L’Oreal Co's long position.The idea behind Coty Inc and LOreal Co ADR 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.| L’Oreal Co vs. Unilever PLC | L’Oreal Co vs. Estee Lauder Companies | L’Oreal Co vs. Church Dwight | L’Oreal Co vs. Mannatech Incorporated |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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