Correlation Between Estee Lauder and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Estee Lauder 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 Estee Lauder 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 Estee Lauder Companies and LOreal Co ADR, you can compare the effects of market volatilities on Estee Lauder 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 Estee Lauder with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and L’Oreal Co.
Diversification Opportunities for Estee Lauder and L’Oreal Co
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Estee and L’Oreal is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies 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 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 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 Estee Lauder i.e., Estee Lauder and L’Oreal Co go up and down completely randomly.
Pair Corralation between Estee Lauder and L’Oreal Co
Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the L’Oreal Co. In addition to that, Estee Lauder is 3.33 times more volatile than LOreal Co ADR. It trades about -0.15 of its total potential returns per unit of risk. LOreal Co ADR is currently generating about -0.38 per unit of volatility. If you would invest 7,790 in LOreal Co ADR on August 28, 2024 and sell it today you would lose (940.00) from holding LOreal Co ADR or give up 12.07% 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. LOreal Co ADR
Performance |
| Timeline |
| Estee Lauder Companies |
| LOreal Co ADR |
Estee Lauder and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Estee Lauder and L’Oreal Co
The main advantage of trading using opposite Estee Lauder and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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.| Estee Lauder vs. Honest Company | Estee Lauder vs. Hims Hers Health | Estee Lauder vs. Procter Gamble | Estee Lauder vs. Kimberly Clark |
| L’Oreal Co vs. Embotelladora Andina SA | L’Oreal Co vs. Signet International Holdings | L’Oreal Co vs. National Beverage Corp | L’Oreal Co vs. PT Astra International |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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