Correlation Between LVMH Mot and Swatch Group

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Can any of the company-specific risk be diversified away by investing in both LVMH Mot and Swatch Group 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 Swatch Group 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 The Swatch Group, you can compare the effects of market volatilities on LVMH Mot and Swatch Group 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 Swatch Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Mot and Swatch Group.

Diversification Opportunities for LVMH Mot and Swatch Group

0.07
  Correlation Coefficient

Significant diversification

The 3 months correlation between LVMH and Swatch is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and The Swatch Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group 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 Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group has no effect on the direction of LVMH Mot i.e., LVMH Mot and Swatch Group go up and down completely randomly.

Pair Corralation between LVMH Mot and Swatch Group

Assuming the 90 days trading horizon LVMH Mot Hennessy is expected to generate 0.72 times more return on investment than Swatch Group. However, LVMH Mot Hennessy is 1.38 times less risky than Swatch Group. It trades about -0.1 of its potential returns per unit of risk. The Swatch Group is currently generating about -0.17 per unit of risk. If you would invest  13,100  in LVMH Mot Hennessy on October 14, 2024 and sell it today you would lose (400.00) from holding LVMH Mot Hennessy or give up 3.05% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy94.12%
ValuesDaily Returns

LVMH Mot Hennessy  vs.  The Swatch Group

 Performance 
       Timeline  
LVMH Mot Hennessy 

Risk-Adjusted Performance

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Strong
Very Weak
Over the last 90 days LVMH Mot Hennessy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, LVMH Mot is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Swatch Group 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days The Swatch Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

LVMH Mot and Swatch Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with LVMH Mot and Swatch Group

The main advantage of trading using opposite LVMH Mot and Swatch Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LVMH Mot position performs unexpectedly, Swatch Group 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 Swatch Group will offset losses from the drop in Swatch Group's long position.
The idea behind LVMH Mot Hennessy and The Swatch Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Anywhere module to track or share privately all of your investments from the convenience of any device.

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