Correlation Between Hermès International and Compagnie Financière

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Can any of the company-specific risk be diversified away by investing in both Hermès International and Compagnie Financière 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 Hermès International and Compagnie Financière into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Herms International Socit and Compagnie Financire Richemont, you can compare the effects of market volatilities on Hermès International and Compagnie Financière 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 Hermès International with a short position of Compagnie Financière. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hermès International and Compagnie Financière.

Diversification Opportunities for Hermès International and Compagnie Financière

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Hermès and Compagnie is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Herms International Socit and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financière and Hermès International 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 Herms International Socit are associated (or correlated) with Compagnie Financière. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financière has no effect on the direction of Hermès International i.e., Hermès International and Compagnie Financière go up and down completely randomly.

Pair Corralation between Hermès International and Compagnie Financière

Assuming the 90 days horizon Herms International Socit is expected to generate 0.76 times more return on investment than Compagnie Financière. However, Herms International Socit is 1.31 times less risky than Compagnie Financière. It trades about 0.11 of its potential returns per unit of risk. Compagnie Financire Richemont is currently generating about 0.08 per unit of risk. If you would invest  212,000  in Herms International Socit on October 14, 2024 and sell it today you would earn a total of  25,300  from holding Herms International Socit or generate 11.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Herms International Socit  vs.  Compagnie Financire Richemont

 Performance 
       Timeline  
Herms International Socit 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Herms International Socit are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hermès International reported solid returns over the last few months and may actually be approaching a breakup point.
Compagnie Financière 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Compagnie Financière may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hermès International and Compagnie Financière Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hermès International and Compagnie Financière

The main advantage of trading using opposite Hermès International and Compagnie Financière positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hermès International position performs unexpectedly, Compagnie Financière 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 Compagnie Financière will offset losses from the drop in Compagnie Financière's long position.
The idea behind Herms International Socit and Compagnie Financire Richemont pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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