Correlation Between Okta and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Okta and LOréal 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 Okta and LOréal SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Okta Inc and LOral SA, you can compare the effects of market volatilities on Okta and LOréal 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 Okta with a short position of LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Okta and LOréal SA.
Diversification Opportunities for Okta and LOréal SA
Good diversification
The 3 months correlation between Okta and LOréal is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Okta Inc and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA and Okta 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 Okta Inc are associated (or correlated) with LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Okta i.e., Okta and LOréal SA go up and down completely randomly.
Pair Corralation between Okta and LOréal SA
Given the investment horizon of 90 days Okta Inc is not expected to generate positive returns. Moreover, Okta is 1.38 times more volatile than LOral SA. It trades away all of its potential returns to assume current level of volatility. LOral SA is currently generating about -0.07 per unit of risk. If you would invest 8,265 in Okta Inc on August 28, 2024 and sell it today you would lose (615.00) from holding Okta Inc or give up 7.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Okta Inc vs. LOral SA
Performance |
| Timeline |
| Okta Inc |
| LOréal SA |
Okta and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Okta and LOréal SA
The main advantage of trading using opposite Okta and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Okta position performs unexpectedly, LOréal 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 LOréal SA will offset losses from the drop in LOréal SA's long position.The idea behind Okta Inc and LOral SA 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.| LOréal SA vs. Inter Parfums | LOréal SA vs. European Wax Center | LOréal SA vs. Estee Lauder Companies | LOréal SA vs. Reckitt Benckiser Group |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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