Correlation Between Kimberly Clark and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Kimberly Clark 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 Kimberly Clark 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 Kimberly Clark de Mexico and LOreal Co ADR, you can compare the effects of market volatilities on Kimberly Clark 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 Kimberly Clark with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kimberly Clark and L’Oreal Co.
Diversification Opportunities for Kimberly Clark and L’Oreal Co
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Kimberly and L’Oreal is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Kimberly Clark de Mexico 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 Kimberly Clark 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 Kimberly Clark de Mexico 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 Kimberly Clark i.e., Kimberly Clark and L’Oreal Co go up and down completely randomly.
Pair Corralation between Kimberly Clark and L’Oreal Co
Assuming the 90 days horizon Kimberly Clark de Mexico is expected to generate 1.39 times more return on investment than L’Oreal Co. However, Kimberly Clark is 1.39 times more volatile than LOreal Co ADR. It trades about -0.05 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.07 per unit of risk. If you would invest 948.00 in Kimberly Clark de Mexico on August 24, 2024 and sell it today you would lose (263.00) from holding Kimberly Clark de Mexico or give up 27.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kimberly Clark de Mexico vs. LOreal Co ADR
Performance |
| Timeline |
| Kimberly Clark de |
| LOreal Co ADR |
Kimberly Clark and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kimberly Clark and L’Oreal Co
The main advantage of trading using opposite Kimberly Clark and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kimberly Clark 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.| Kimberly Clark vs. Reckitt Benckiser Group | Kimberly Clark vs. Church Dwight | Kimberly Clark vs. LOreal Co ADR | Kimberly Clark vs. Shiseido Company |
| 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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