Correlation Between LOreal Co and Coty
Can any of the company-specific risk be diversified away by investing in both LOreal Co and Coty 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 LOreal Co and Coty 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 Coty Inc, you can compare the effects of market volatilities on LOreal Co and Coty 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 LOreal Co with a short position of Coty. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOreal Co and Coty.
Diversification Opportunities for LOreal Co and Coty
Almost no diversification
The 3 months correlation between LOreal and Coty is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Coty Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coty Inc and LOreal 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 Coty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coty Inc has no effect on the direction of LOreal Co i.e., LOreal Co and Coty go up and down completely randomly.
Pair Corralation between LOreal Co and Coty
Assuming the 90 days horizon LOreal Co ADR is expected to generate 0.69 times more return on investment than Coty. However, LOreal Co ADR is 1.46 times less risky than Coty. It trades about 0.1 of its potential returns per unit of risk. Coty Inc is currently generating about -0.09 per unit of risk. If you would invest 6,850 in LOreal Co ADR on September 23, 2024 and sell it today you would earn a total of 167.00 from holding LOreal Co ADR or generate 2.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOreal Co ADR vs. Coty Inc
Performance |
| Timeline |
| LOreal Co ADR |
| Coty Inc |
LOreal Co and Coty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LOreal Co and Coty
The main advantage of trading using opposite LOreal Co and Coty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LOreal Co position performs unexpectedly, Coty 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 Coty will offset losses from the drop in Coty's long position.| LOreal Co vs. Becle SA de | LOreal Co vs. Naked Wines plc | LOreal Co vs. Willamette Valley Vineyards | LOreal Co vs. Fresh Grapes LLC |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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