Correlation Between Dow Jones and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Dow Jones and LOréal 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 Dow Jones and LOréal SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and LOral SA, you can compare the effects of market volatilities on Dow Jones and LOréal 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 Dow Jones with a short position of LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and LOréal SA.
Diversification Opportunities for Dow Jones and LOréal SA
Pay attention - limited upside
The 3 months correlation between Dow and LOréal is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Dow Jones i.e., Dow Jones and LOréal SA go up and down completely randomly.
Pair Corralation between Dow Jones and LOréal SA
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.45 times more return on investment than LOréal SA. However, Dow Jones Industrial is 2.2 times less risky than LOréal SA. It trades about 0.26 of its potential returns per unit of risk. LOral SA is currently generating about -0.28 per unit of risk. If you would invest 4,238,757 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 234,900 from holding Dow Jones Industrial or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. LOral SA
Performance |
| Timeline |
Dow Jones and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
LOral SA
Pair trading matchups for LOréal SA
Pair Trading with Dow Jones and LOréal SA
The main advantage of trading using opposite Dow Jones and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, LOréal 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 LOréal SA will offset losses from the drop in LOréal SA's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| LOréal SA vs. Inter Parfums | LOréal SA vs. European Wax Center | LOréal SA vs. Estee Lauder Companies | LOréal SA vs. Reckitt Benckiser Group |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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