Correlation Between Danone SA and Hermes International

Can any of the company-specific risk be diversified away by investing in both Danone SA and Hermes International 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 Danone SA and Hermes International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Danone SA and Hermes International SCA, you can compare the effects of market volatilities on Danone SA and Hermes International 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 Danone SA with a short position of Hermes International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danone SA and Hermes International.

Diversification Opportunities for Danone SA and Hermes International

-0.14

Correlation Coefficient

Danone SA  Hermes International

Good diversification

The 3 months correlation between Danone and Hermes is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Hermes International SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International SCA and Danone 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 Danone SA are associated (or correlated) with Hermes International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hermes International SCA has no effect on the direction of Danone SA i.e., Danone SA and Hermes International go up and down completely randomly.

Pair Corralation between Danone SA and Hermes International

Assuming the 90 days horizon Danone SA is expected to generate 0.39 times more return on investment than Hermes International. However, Danone SA is 2.59 times less risky than Hermes International. It trades about 0.05 of its potential returns per unit of risk. Hermes International SCA is currently generating about -0.02 per unit of risk. If you would invest  6,320  in Danone SA on August 31, 2024 and sell it today you would earn a total of  150.00  from holding Danone SA or generate 2.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Danone SA  vs.  Hermes International SCA

Danone SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hermes International SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hermes International SCA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hermes International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Danone SA and Hermes International

The main advantage of trading using opposite Danone SA and Hermes International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danone SA position performs unexpectedly, Hermes International 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 Hermes International will offset losses from the drop in Hermes International's long position.

The idea behind Danone SA and Hermes International SCA 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.