Correlation Between L’Oreal Co and Hengan International
Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and Hengan International 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 Hengan International 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 Hengan International Group, you can compare the effects of market volatilities on L’Oreal Co and Hengan International 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 Hengan International. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and Hengan International.
Diversification Opportunities for L’Oreal Co and Hengan International
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between L’Oreal and Hengan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Hengan International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengan International 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 Hengan International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengan International has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and Hengan International go up and down completely randomly.
Pair Corralation between L’Oreal Co and Hengan International
Assuming the 90 days horizon LOreal Co ADR is expected to under-perform the Hengan International. But the pink sheet apears to be less risky and, when comparing its historical volatility, LOreal Co ADR is 1.24 times less risky than Hengan International. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Hengan International Group is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,659 in Hengan International Group on September 3, 2024 and sell it today you would lose (218.00) from holding Hengan International Group or give up 13.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOreal Co ADR vs. Hengan International Group
Performance |
| Timeline |
| LOreal Co ADR |
| Hengan International |
L’Oreal Co and Hengan International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with L’Oreal Co and Hengan International
The main advantage of trading using opposite L’Oreal Co and Hengan International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L’Oreal Co position performs unexpectedly, Hengan International 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 Hengan International will offset losses from the drop in Hengan International'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 |
| Hengan International vs. LOral SA | Hengan International vs. LOreal Co ADR | Hengan International vs. Unilever PLC ADR | Hengan International vs. Kimberly Clark |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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