Correlation Between Henkel AG and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Henkel AG 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 Henkel AG and LOréal SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Henkel AG Co and LOral SA, you can compare the effects of market volatilities on Henkel AG 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 Henkel AG with a short position of LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Henkel AG and LOréal SA.
Diversification Opportunities for Henkel AG and LOréal SA
Modest diversification
The 3 months correlation between Henkel and LOréal is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Henkel AG Co and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA and Henkel AG 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 Henkel AG Co 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 Henkel AG i.e., Henkel AG and LOréal SA go up and down completely randomly.
Pair Corralation between Henkel AG and LOréal SA
Assuming the 90 days horizon Henkel AG Co is expected to generate 1.11 times more return on investment than LOréal SA. However, Henkel AG is 1.11 times more volatile than LOral SA. It trades about -0.2 of its potential returns per unit of risk. LOral SA is currently generating about -0.28 per unit of risk. If you would invest 8,275 in Henkel AG Co on August 28, 2024 and sell it today you would lose (875.00) from holding Henkel AG Co or give up 10.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Henkel AG Co vs. LOral SA
Performance |
| Timeline |
| Henkel AG |
| LOréal SA |
Henkel AG and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Henkel AG and LOréal SA
The main advantage of trading using opposite Henkel AG and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Henkel AG 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.| Henkel AG vs. European Wax Center | Henkel AG vs. Edgewell Personal Care | Henkel AG vs. Inter Parfums | Henkel AG vs. Mannatech Incorporated |
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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