Correlation Between Estee Lauder and Essity AB
Can any of the company-specific risk be diversified away by investing in both Estee Lauder and Essity AB 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 Estee Lauder and Essity AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Estee Lauder Companies and Essity AB, you can compare the effects of market volatilities on Estee Lauder and Essity AB 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 Estee Lauder with a short position of Essity AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Essity AB.
Diversification Opportunities for Estee Lauder and Essity AB
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Estee and Essity is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Estee Lauder i.e., Estee Lauder and Essity AB go up and down completely randomly.
Pair Corralation between Estee Lauder and Essity AB
Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Essity AB. But the stock apears to be less risky and, when comparing its historical volatility, Estee Lauder Companies is 7.07 times less risky than Essity AB. The stock trades about -0.08 of its potential returns per unit of risk. The Essity AB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,558 in Essity AB on September 3, 2024 and sell it today you would earn a total of 75.00 from holding Essity AB or generate 2.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 71.92% |
| Values | Daily Returns |
Estee Lauder Companies vs. Essity AB
Performance |
| Timeline |
| Estee Lauder Companies |
| Essity AB |
Estee Lauder and Essity AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Estee Lauder and Essity AB
The main advantage of trading using opposite Estee Lauder and Essity AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder position performs unexpectedly, Essity AB 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 Essity AB will offset losses from the drop in Essity AB's long position.| Estee Lauder vs. Honest Company | Estee Lauder vs. Hims Hers Health | Estee Lauder vs. Procter Gamble | Estee Lauder vs. Coty Inc |
| Essity AB vs. LOral SA | Essity AB vs. LOreal Co ADR | Essity AB vs. Unilever PLC ADR | Essity AB vs. Kimberly Clark |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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