Correlation Between LVMH Mot and Danone SA
Can any of the company-specific risk be diversified away by investing in both LVMH Mot and Danone SA 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 LVMH Mot and Danone SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LVMH Mot Hennessy and Danone SA, you can compare the effects of market volatilities on LVMH Mot and Danone SA 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 LVMH Mot with a short position of Danone SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Mot and Danone SA.
Diversification Opportunities for LVMH Mot and Danone SA
Poor diversification
The 3 months correlation between LVMH and Danone is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and LVMH Mot 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 LVMH Mot Hennessy are associated (or correlated) with Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of LVMH Mot i.e., LVMH Mot and Danone SA go up and down completely randomly.
Pair Corralation between LVMH Mot and Danone SA
Assuming the 90 days horizon LVMH Mot Hennessy is expected to generate 2.47 times more return on investment than Danone SA. However, LVMH Mot is 2.47 times more volatile than Danone SA. It trades about 0.17 of its potential returns per unit of risk. Danone SA is currently generating about 0.07 per unit of risk. If you would invest 58,314 in LVMH Mot Hennessy on November 18, 2024 and sell it today you would earn a total of 12,986 from holding LVMH Mot Hennessy or generate 22.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LVMH Mot Hennessy vs. Danone SA
Performance |
| Timeline |
| LVMH Mot Hennessy |
| Danone SA |
LVMH Mot and Danone SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LVMH Mot and Danone SA
The main advantage of trading using opposite LVMH Mot and Danone SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LVMH Mot position performs unexpectedly, Danone SA 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 Danone SA will offset losses from the drop in Danone SA's long position.| LVMH Mot vs. Kering SA | LVMH Mot vs. Hermes International SCA | LVMH Mot vs. LOreal SA | LVMH Mot vs. Air Liquide SA |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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