Correlation Between LVMH Mot and Mersen SA
Can any of the company-specific risk be diversified away by investing in both LVMH Mot and Mersen 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 Mersen 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 Mersen SA, you can compare the effects of market volatilities on LVMH Mot and Mersen 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 Mersen SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Mot and Mersen SA.
Diversification Opportunities for LVMH Mot and Mersen SA
Poor diversification
The 3 months correlation between LVMH and Mersen is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Mersen SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mersen 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 Mersen SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mersen SA has no effect on the direction of LVMH Mot i.e., LVMH Mot and Mersen SA go up and down completely randomly.
Pair Corralation between LVMH Mot and Mersen SA
Assuming the 90 days horizon LVMH Mot Hennessy is expected to generate 0.74 times more return on investment than Mersen SA. However, LVMH Mot Hennessy is 1.35 times less risky than Mersen SA. It trades about -0.07 of its potential returns per unit of risk. Mersen SA is currently generating about -0.15 per unit of risk. If you would invest 60,980 in LVMH Mot Hennessy on September 1, 2024 and sell it today you would lose (1,730) from holding LVMH Mot Hennessy or give up 2.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LVMH Mot Hennessy vs. Mersen SA
Performance |
| Timeline |
| LVMH Mot Hennessy |
| Mersen SA |
LVMH Mot and Mersen SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LVMH Mot and Mersen SA
The main advantage of trading using opposite LVMH Mot and Mersen SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LVMH Mot position performs unexpectedly, Mersen 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 Mersen SA will offset losses from the drop in Mersen 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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