Correlation Between LOréal SA and Shiseido
Can any of the company-specific risk be diversified away by investing in both LOréal SA and Shiseido 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 Shiseido into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LOral SA and Shiseido Company, you can compare the effects of market volatilities on LOréal SA and Shiseido 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 Shiseido. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOréal SA and Shiseido.
Diversification Opportunities for LOréal SA and Shiseido
Very poor diversification
The 3 months correlation between LOréal and Shiseido is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding LOral SA and Shiseido Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shiseido 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 Shiseido. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shiseido has no effect on the direction of LOréal SA i.e., LOréal SA and Shiseido go up and down completely randomly.
Pair Corralation between LOréal SA and Shiseido
Assuming the 90 days horizon LOral SA is expected to generate 1.0 times more return on investment than Shiseido. However, LOréal SA is 1.0 times more volatile than Shiseido Company. It trades about -0.28 of its potential returns per unit of risk. Shiseido Company is currently generating about -0.36 per unit of risk. If you would invest 38,918 in LOral SA on August 28, 2024 and sell it today you would lose (4,908) from holding LOral SA or give up 12.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOral SA vs. Shiseido Company
Performance |
| Timeline |
| LOréal SA |
| Shiseido |
LOréal SA and Shiseido Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LOréal SA and Shiseido
The main advantage of trading using opposite LOréal SA and Shiseido positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LOréal SA position performs unexpectedly, Shiseido 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 Shiseido will offset losses from the drop in Shiseido'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 |
| Shiseido vs. Reckitt Benckiser Group | Shiseido vs. Church Dwight | Shiseido vs. Kimberly Clark de Mexico | Shiseido vs. LOreal Co ADR |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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