Correlation Between Estee Lauder and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Estee Lauder 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 Estee Lauder and LOréal SA 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 LOral SA, you can compare the effects of market volatilities on Estee Lauder 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 Estee Lauder with a short position of LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and LOréal SA.
Diversification Opportunities for Estee Lauder and LOréal SA
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Estee and LOréal is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA 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 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 Estee Lauder i.e., Estee Lauder and LOréal SA go up and down completely randomly.
Pair Corralation between Estee Lauder and LOréal SA
Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the LOréal SA. In addition to that, Estee Lauder is 2.42 times more volatile than LOral SA. It trades about -0.15 of its total potential returns per unit of risk. LOral SA is currently generating about -0.28 per unit of volatility. If you would invest 38,918 in LOral SA on August 28, 2024 and sell it today you would lose (4,908) from holding LOral SA or give up 12.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Estee Lauder Companies vs. LOral SA
Performance |
| Timeline |
| Estee Lauder Companies |
| LOréal SA |
Estee Lauder and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Estee Lauder and LOréal SA
The main advantage of trading using opposite Estee Lauder and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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.| Estee Lauder vs. Honest Company | Estee Lauder vs. Hims Hers Health | Estee Lauder vs. Procter Gamble | Estee Lauder vs. Kimberly Clark |
| LOréal SA vs. LOreal Co ADR | LOréal SA vs. Unilever PLC ADR | LOréal SA vs. Kimberly Clark | LOréal SA vs. The Clorox |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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