Correlation Between L’Oreal Co and Unicharm
Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and Unicharm 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 Unicharm 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 Unicharm, you can compare the effects of market volatilities on L’Oreal Co and Unicharm 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 Unicharm. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and Unicharm.
Diversification Opportunities for L’Oreal Co and Unicharm
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between L’Oreal and Unicharm is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Unicharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unicharm 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 Unicharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unicharm has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and Unicharm go up and down completely randomly.
Pair Corralation between L’Oreal Co and Unicharm
Assuming the 90 days horizon LOreal Co ADR is expected to generate 0.41 times more return on investment than Unicharm. However, LOreal Co ADR is 2.45 times less risky than Unicharm. It trades about -0.27 of its potential returns per unit of risk. Unicharm is currently generating about -0.22 per unit of risk. If you would invest 7,790 in LOreal Co ADR on August 29, 2024 and sell it today you would lose (770.00) from holding LOreal Co ADR or give up 9.88% 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. Unicharm
Performance |
| Timeline |
| LOreal Co ADR |
| Unicharm |
L’Oreal Co and Unicharm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with L’Oreal Co and Unicharm
The main advantage of trading using opposite L’Oreal Co and Unicharm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L’Oreal Co position performs unexpectedly, Unicharm 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 Unicharm will offset losses from the drop in Unicharm'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 |
| Unicharm vs. Estee Lauder Companies | Unicharm vs. Honest Company | Unicharm vs. Hims Hers Health | Unicharm vs. Procter Gamble |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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