Correlation Between L’Oreal Co and BASF SE
Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and BASF SE 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 L’Oreal Co and BASF SE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LOreal Co ADR and BASF SE ADR, you can compare the effects of market volatilities on L’Oreal Co and BASF SE 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 L’Oreal Co with a short position of BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and BASF SE.
Diversification Opportunities for L’Oreal Co and BASF SE
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between L’Oreal and BASF is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and BASF SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE ADR and L’Oreal Co 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 LOreal Co ADR are associated (or correlated) with BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE ADR has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and BASF SE go up and down completely randomly.
Pair Corralation between L’Oreal Co and BASF SE
Assuming the 90 days horizon LOreal Co ADR is expected to generate 0.75 times more return on investment than BASF SE. However, LOreal Co ADR is 1.33 times less risky than BASF SE. It trades about -0.19 of its potential returns per unit of risk. BASF SE ADR is currently generating about -0.2 per unit of risk. If you would invest 7,478 in LOreal Co ADR on September 2, 2024 and sell it today you would lose (508.00) from holding LOreal Co ADR or give up 6.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOreal Co ADR vs. BASF SE ADR
Performance |
| Timeline |
| LOreal Co ADR |
| BASF SE ADR |
L’Oreal Co and BASF SE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with L’Oreal Co and BASF SE
The main advantage of trading using opposite L’Oreal Co and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L’Oreal Co position performs unexpectedly, BASF SE 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 BASF SE will offset losses from the drop in BASF SE's long position.| 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 |
| BASF SE vs. South32 Limited | BASF SE vs. NioCorp Developments Ltd | BASF SE vs. HUMANA INC | BASF SE vs. SCOR PK |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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