Correlation Between Capri Holdings and Hermes International

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

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

Diversification Opportunities for Capri Holdings and Hermes International

0.38

Correlation Coefficient

Capri Holdings  Hermes International

Weak diversification

The 3 months correlation between Capri and Hermes is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Capri Holdings 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 Capri Holdings 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 Capri Holdings 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 Capri Holdings i.e., Capri Holdings and Hermes International go up and down completely randomly.

Pair Corralation between Capri Holdings and Hermes International

Given the investment horizon of 90 days Capri Holdings is expected to under-perform the Hermes International. In addition to that, Capri Holdings is 2.97 times more volatile than Hermes International SCA. It trades about -0.05 of its total potential returns per unit of risk. Hermes International SCA is currently generating about -0.04 per unit of volatility. If you would invest  236,500  in Hermes International SCA on September 1, 2024 and sell it today you would lose (17,500) from holding Hermes International SCA or give up 7.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Capri Holdings  vs.  Hermes International SCA

Capri Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capri Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 nearly stable basic indicators, Hermes International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Capri Holdings and Hermes International

The main advantage of trading using opposite Capri Holdings and Hermes International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capri Holdings 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 Capri Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.