Correlation Between L’Oreal Co and Kao
Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and Kao 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 Kao 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 Kao Corporation, you can compare the effects of market volatilities on L’Oreal Co and Kao 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 Kao. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and Kao.
Diversification Opportunities for L’Oreal Co and Kao
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between L’Oreal and Kao is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Kao Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kao Corporation 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 Kao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kao Corporation has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and Kao go up and down completely randomly.
Pair Corralation between L’Oreal Co and Kao
Assuming the 90 days horizon L’Oreal Co is expected to generate 40.6 times less return on investment than Kao. But when comparing it to its historical volatility, LOreal Co ADR is 2.05 times less risky than Kao. It trades about 0.0 of its potential returns per unit of risk. Kao Corporation is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,644 in Kao Corporation on September 4, 2024 and sell it today you would earn a total of 951.00 from holding Kao Corporation or generate 26.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 88.48% |
| Values | Daily Returns |
LOreal Co ADR vs. Kao Corp.
Performance |
| Timeline |
| LOreal Co ADR |
| Kao Corporation |
L’Oreal Co and Kao Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with L’Oreal Co and Kao
The main advantage of trading using opposite L’Oreal Co and Kao positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L’Oreal Co position performs unexpectedly, Kao 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 Kao will offset losses from the drop in Kao'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 |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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