Correlation Between Bouygues and LVMH Mot

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

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

Diversification Opportunities for Bouygues and LVMH Mot

0.19

Correlation Coefficient

Bouygues  LVMH Mot

Average diversification

The 3 months correlation between Bouygues and LVMH is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Bouygues SA and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Bouygues 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 Bouygues SA are associated (or correlated) with LVMH Mot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Bouygues i.e., Bouygues and LVMH Mot go up and down completely randomly.

Pair Corralation between Bouygues and LVMH Mot

Assuming the 90 days horizon Bouygues SA is expected to under-perform the LVMH Mot. But the stock apears to be less risky and, when comparing its historical volatility, Bouygues SA is 1.48 times less risky than LVMH Mot. The stock trades about -0.02 of its potential returns per unit of risk. The LVMH Mot Hennessy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  69,608  in LVMH Mot Hennessy on September 26, 2024 and sell it today you would lose (6,528) from holding LVMH Mot Hennessy or give up 9.38% of portfolio value over 90 days.

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

Bouygues SA  vs.  LVMH Mot Hennessy

Bouygues SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bouygues SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bouygues and LVMH Mot

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

The idea behind Bouygues SA and LVMH Mot Hennessy 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.