Correlation Between LVMH Mot and Compagnie Financière
Can any of the company-specific risk be diversified away by investing in both LVMH Mot and Compagnie Financière 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 Compagnie Financière 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 Compagnie Financire Richemont, you can compare the effects of market volatilities on LVMH Mot and Compagnie Financière 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 Compagnie Financière. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Mot and Compagnie Financière.
Diversification Opportunities for LVMH Mot and Compagnie Financière
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between LVMH and Compagnie is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financière 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 Compagnie Financière. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financière has no effect on the direction of LVMH Mot i.e., LVMH Mot and Compagnie Financière go up and down completely randomly.
Pair Corralation between LVMH Mot and Compagnie Financière
Assuming the 90 days trading horizon LVMH Mot Hennessy is expected to under-perform the Compagnie Financière. But the stock apears to be less risky and, when comparing its historical volatility, LVMH Mot Hennessy is 1.24 times less risky than Compagnie Financière. The stock trades about -0.01 of its potential returns per unit of risk. The Compagnie Financire Richemont is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,306 in Compagnie Financire Richemont on October 14, 2024 and sell it today you would earn a total of 184.00 from holding Compagnie Financire Richemont or generate 14.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
LVMH Mot Hennessy vs. Compagnie Financire Richemont
Performance |
| Timeline |
| LVMH Mot Hennessy |
| Compagnie Financière |
LVMH Mot and Compagnie Financière Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LVMH Mot and Compagnie Financière
The main advantage of trading using opposite LVMH Mot and Compagnie Financière positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LVMH Mot position performs unexpectedly, Compagnie Financière 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 Compagnie Financière will offset losses from the drop in Compagnie Financière's long position.| LVMH Mot vs. LVMH Mot Hennessy | LVMH Mot vs. LVMH Mot Hennessy | LVMH Mot vs. Herms International Socit | LVMH Mot vs. CHRISTIAN DIOR ADR14EO2 |
| Compagnie Financière vs. SINGAPORE AIRLINES | Compagnie Financière vs. Guidewire Software | Compagnie Financière vs. Magic Software Enterprises | Compagnie Financière vs. United Airlines Holdings |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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