Correlation Between Prada Spa and LVMH Moët
Can any of the company-specific risk be diversified away by investing in both Prada Spa and LVMH Moët 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 Prada Spa and LVMH Moët into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prada Spa PK and LVMH Mot Hennessy, you can compare the effects of market volatilities on Prada Spa and LVMH Moët 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 Prada Spa with a short position of LVMH Moët. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prada Spa and LVMH Moët.
Diversification Opportunities for Prada Spa and LVMH Moët
Poor diversification
The 3 months correlation between Prada and LVMH is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Prada Spa PK and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Prada Spa 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 Prada Spa PK are associated (or correlated) with LVMH Moët. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Prada Spa i.e., Prada Spa and LVMH Moët go up and down completely randomly.
Pair Corralation between Prada Spa and LVMH Moët
Assuming the 90 days horizon Prada Spa is expected to generate 2.87 times less return on investment than LVMH Moët. But when comparing it to its historical volatility, Prada Spa PK is 1.4 times less risky than LVMH Moët. It trades about 0.09 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 64,982 in LVMH Mot Hennessy on November 3, 2024 and sell it today you would earn a total of 7,608 from holding LVMH Mot Hennessy or generate 11.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prada Spa PK vs. LVMH Mot Hennessy
Performance |
| Timeline |
| Prada Spa PK |
| LVMH Mot Hennessy |
Prada Spa and LVMH Moët Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prada Spa and LVMH Moët
The main advantage of trading using opposite Prada Spa and LVMH Moët positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prada Spa position performs unexpectedly, LVMH Moët 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 LVMH Moët will offset losses from the drop in LVMH Moët's long position.| Prada Spa vs. Chow Tai Fook | Prada Spa vs. Christian Dior SE | Prada Spa vs. Kering SA | Prada Spa vs. Christian Dior SE |
| LVMH Moët vs. Hermes International SA | LVMH Moët vs. Kering SA | LVMH Moët vs. Capri Holdings | LVMH Moët vs. Tapestry |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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