Correlation Between LOréal SA and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both LOréal SA 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 LOréal SA 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 LOral SA and LOreal Co ADR, you can compare the effects of market volatilities on LOréal SA 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 LOréal SA with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOréal SA and L’Oreal Co.
Diversification Opportunities for LOréal SA and L’Oreal Co
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between LOréal and L’Oreal is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding LOral SA 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 LOréal SA 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 LOral SA 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 LOréal SA i.e., LOréal SA and L’Oreal Co go up and down completely randomly.
Pair Corralation between LOréal SA and L’Oreal Co
Assuming the 90 days horizon LOral SA is expected to under-perform the L’Oreal Co. In addition to that, LOréal SA is 1.38 times more volatile than LOreal Co ADR. It trades about -0.28 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 |
LOral SA vs. LOreal Co ADR
Performance |
| Timeline |
| LOréal SA |
| LOreal Co ADR |
LOréal SA and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LOréal SA and L’Oreal Co
The main advantage of trading using opposite LOréal SA and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LOréal SA 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.| LOréal SA vs. LOreal Co ADR | LOréal SA vs. Unilever PLC ADR | LOréal SA vs. Kimberly Clark | LOréal SA vs. The Clorox |
| 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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