Correlation Between LOreal SA and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both LOreal SA and STMicroelectronics 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 LOreal SA and STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LOreal SA and STMicroelectronics NV, you can compare the effects of market volatilities on LOreal SA and STMicroelectronics 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 LOreal SA with a short position of STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOreal SA and STMicroelectronics.
Diversification Opportunities for LOreal SA and STMicroelectronics
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LOreal and STMicroelectronics is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics and LOreal SA 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 LOreal SA are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of LOreal SA i.e., LOreal SA and STMicroelectronics go up and down completely randomly.
Pair Corralation between LOreal SA and STMicroelectronics
Assuming the 90 days horizon LOreal SA is expected to generate 0.63 times more return on investment than STMicroelectronics. However, LOreal SA is 1.58 times less risky than STMicroelectronics. It trades about 0.0 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.03 per unit of risk. If you would invest 34,647 in LOreal SA on August 26, 2024 and sell it today you would lose (1,742) from holding LOreal SA or give up 5.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOreal SA vs. STMicroelectronics NV
Performance |
| Timeline |
| LOreal SA |
| STMicroelectronics |
LOreal SA and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LOreal SA and STMicroelectronics
The main advantage of trading using opposite LOreal SA and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LOreal SA position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.| LOreal SA vs. Remy Cointreau | LOreal SA vs. Alten SA | LOreal SA vs. Gaztransport Technigaz SAS | LOreal SA vs. Trigano SA |
| STMicroelectronics vs. LVMH Mot Hennessy | STMicroelectronics vs. LOreal SA | STMicroelectronics vs. Hermes International SCA | STMicroelectronics vs. Manitou BF 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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