Correlation Between Estee Lauder and LOreal Co

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

By analyzing existing cross correlation between Estee Lauder Companies and LOreal Co ADR, you can compare the effects of market volatilities on Estee Lauder and LOreal 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 Estee Lauder with a short position of LOreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and LOreal Co.

Diversification Opportunities for Estee Lauder and LOreal Co

0.84

Correlation Coefficient

Estee Lauder  LOreal Co

Very poor diversification

The 3 months correlation between Estee and LOreal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies 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 Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with LOreal 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 Estee Lauder i.e., Estee Lauder and LOreal Co go up and down completely randomly.

Pair Corralation between Estee Lauder and LOreal Co

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to generate 1.86 times more return on investment than LOreal Co. However, Estee Lauder is 1.86 times more volatile than LOreal Co ADR. It trades about -0.01 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.09 per unit of risk. If you would invest  8,473  in Estee Lauder Companies on September 15, 2024 and sell it today you would lose (469.00) from holding Estee Lauder Companies or give up 5.54% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  LOreal Co ADR

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Estee Lauder is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

LOreal Co ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal Co ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental 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 Estee Lauder and LOreal Co

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

The idea behind Estee Lauder Companies and LOreal Co ADR 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.