Correlation Between Burberry Group and Swatch Group

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

By analyzing existing cross correlation between Burberry Group Plc and Swatch Group AG, you can compare the effects of market volatilities on Burberry Group and Swatch Group 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 Burberry Group with a short position of Swatch Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burberry Group and Swatch Group.

Diversification Opportunities for Burberry Group and Swatch Group

-0.07

Correlation Coefficient

Burberry Group  Swatch Group

Good diversification

The 3 months correlation between Burberry and Swatch is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Burberry Group Plc and Swatch Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group AG and Burberry Group 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 Burberry Group Plc are associated (or correlated) with Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group AG has no effect on the direction of Burberry Group i.e., Burberry Group and Swatch Group go up and down completely randomly.

Pair Corralation between Burberry Group and Swatch Group

Assuming the 90 days horizon Burberry Group Plc is expected to generate 1.51 times more return on investment than Swatch Group. However, Burberry Group is 1.51 times more volatile than Swatch Group AG. It trades about 0.12 of its potential returns per unit of risk. Swatch Group AG is currently generating about -0.07 per unit of risk. If you would invest  890.00  in Burberry Group Plc on August 30, 2024 and sell it today you would earn a total of  255.00  from holding Burberry Group Plc or generate 28.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Burberry Group Plc  vs.  Swatch Group AG

Burberry Group Plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Burberry Group Plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Burberry Group showed solid returns over the last few months and may actually be approaching a breakup point.

Swatch Group AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swatch Group AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Burberry Group and Swatch Group

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

The idea behind Burberry Group Plc and Swatch Group AG 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.