Correlation Between Este Lauder and LOREAL ADR

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

By analyzing existing cross correlation between The Este Lauder and LOREAL ADR 15EO, you can compare the effects of market volatilities on Este Lauder and LOREAL ADR 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 Este Lauder with a short position of LOREAL ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Este Lauder and LOREAL ADR.

Diversification Opportunities for Este Lauder and LOREAL ADR

0.73

Correlation Coefficient

Este Lauder  LOREAL ADR

Poor diversification

The 3 months correlation between Este and LOREAL is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding The Este Lauder and LOREAL ADR 15EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOREAL ADR 15EO and Este 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 The Este Lauder are associated (or correlated) with LOREAL ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOREAL ADR 15EO has no effect on the direction of Este Lauder i.e., Este Lauder and LOREAL ADR go up and down completely randomly.

Pair Corralation between Este Lauder and LOREAL ADR

Assuming the 90 days trading horizon The Este Lauder is expected to generate 1.88 times more return on investment than LOREAL ADR. However, Este Lauder is 1.88 times more volatile than LOREAL ADR 15EO. It trades about -0.03 of its potential returns per unit of risk. LOREAL ADR 15EO is currently generating about -0.08 per unit of risk. If you would invest  8,100  in The Este Lauder on September 24, 2024 and sell it today you would lose (940.00) from holding The Este Lauder or give up 11.6% of portfolio value over 90 days.

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

The Este Lauder  vs.  LOREAL ADR 15EO

Este Lauder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Este Lauder has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

LOREAL ADR 15EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOREAL ADR 15EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Este Lauder and LOREAL ADR

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

The idea behind The Este Lauder and LOREAL ADR 15EO 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.