Correlation Between Shiseido and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Shiseido and L’Oreal Co 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 Shiseido and L’Oreal Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shiseido Company and LOreal Co ADR, you can compare the effects of market volatilities on Shiseido and L’Oreal Co 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 Shiseido with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shiseido and L’Oreal Co.
Diversification Opportunities for Shiseido and L’Oreal Co
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Shiseido and L’Oreal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shiseido Company and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR and Shiseido 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 Shiseido Company are associated (or correlated) with L’Oreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of Shiseido i.e., Shiseido and L’Oreal Co go up and down completely randomly.
Pair Corralation between Shiseido and L’Oreal Co
Assuming the 90 days horizon Shiseido Company is expected to under-perform the L’Oreal Co. In addition to that, Shiseido is 1.19 times more volatile than LOreal Co ADR. It trades about -0.45 of its total potential returns per unit of risk. LOreal Co ADR is currently generating about -0.36 per unit of volatility. If you would invest 7,696 in LOreal Co ADR on August 24, 2024 and sell it today you would lose (932.00) from holding LOreal Co ADR or give up 12.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Shiseido Company vs. LOreal Co ADR
Performance |
| Timeline |
| Shiseido |
| LOreal Co ADR |
Shiseido and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shiseido and L’Oreal Co
The main advantage of trading using opposite Shiseido and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shiseido position performs unexpectedly, L’Oreal Co 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 L’Oreal Co will offset losses from the drop in L’Oreal Co's long position.| Shiseido vs. Reckitt Benckiser Group | Shiseido vs. Church Dwight | Shiseido vs. Kimberly Clark de Mexico | Shiseido vs. LOreal Co ADR |
| L’Oreal Co vs. Unilever PLC | L’Oreal Co vs. Estee Lauder Companies | L’Oreal Co vs. Church Dwight | L’Oreal Co vs. Mannatech Incorporated |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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