Correlation Between Henkel AG and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Henkel AG 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 Henkel AG 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 Henkel AG Co and LOreal Co ADR, you can compare the effects of market volatilities on Henkel AG 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 Henkel AG with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Henkel AG and L’Oreal Co.
Diversification Opportunities for Henkel AG and L’Oreal Co
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Henkel and L’Oreal is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Henkel AG Co 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 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 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 Henkel AG i.e., Henkel AG and L’Oreal Co go up and down completely randomly.
Pair Corralation between Henkel AG and L’Oreal Co
Assuming the 90 days horizon Henkel AG Co is expected to generate 0.7 times more return on investment than L’Oreal Co. However, Henkel AG Co is 1.42 times less risky than L’Oreal Co. It trades about 0.04 of its potential returns per unit of risk. LOreal Co ADR is currently generating about 0.0 per unit of risk. If you would invest 1,547 in Henkel AG Co on September 3, 2024 and sell it today you would earn a total of 350.00 from holding Henkel AG Co or generate 22.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Henkel AG Co vs. LOreal Co ADR
Performance |
| Timeline |
| Henkel AG |
| LOreal Co ADR |
Henkel AG and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Henkel AG and L’Oreal Co
The main advantage of trading using opposite Henkel AG and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Henkel AG 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.| Henkel AG vs. Essity AB | Henkel AG vs. Hengan International Group | Henkel AG vs. LOral SA | Henkel AG vs. Beiersdorf AG ADR |
| L’Oreal Co vs. Unilever PLC | L’Oreal Co vs. Estee Lauder Companies | L’Oreal Co vs. Church Dwight | L’Oreal Co vs. Mannatech Incorporated |
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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