Correlation Between L’Oreal Co and Clorox
Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and Clorox 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 Clorox 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 The Clorox, you can compare the effects of market volatilities on L’Oreal Co and Clorox 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 Clorox. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and Clorox.
Diversification Opportunities for L’Oreal Co and Clorox
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between L’Oreal and Clorox is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox 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 Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and Clorox go up and down completely randomly.
Pair Corralation between L’Oreal Co and Clorox
Assuming the 90 days horizon LOreal Co ADR is expected to under-perform the Clorox. In addition to that, L’Oreal Co is 1.23 times more volatile than The Clorox. It trades about -0.09 of its total potential returns per unit of risk. The Clorox is currently generating about 0.07 per unit of volatility. If you would invest 14,173 in The Clorox on August 28, 2024 and sell it today you would earn a total of 2,459 from holding The Clorox or generate 17.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.52% |
| Values | Daily Returns |
LOreal Co ADR vs. The Clorox
Performance |
| Timeline |
| LOreal Co ADR |
| Clorox |
L’Oreal Co and Clorox Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with L’Oreal Co and Clorox
The main advantage of trading using opposite L’Oreal Co and Clorox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L’Oreal Co position performs unexpectedly, Clorox 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 Clorox will offset losses from the drop in Clorox'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 |
| Clorox vs. Colgate Palmolive | Clorox vs. Procter Gamble | Clorox vs. Unilever PLC ADR | Clorox vs. Church Dwight |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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