Correlation Between Hermes International and Burberry Group

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

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

Diversification Opportunities for Hermes International and Burberry Group

0.02

Correlation Coefficient

Hermes International  Burberry Group

Significant diversification

The 3 months correlation between Hermes and Burberry is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SA and Burberry Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burberry Group plc and Hermes International 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 Hermes International SA are associated (or correlated) with Burberry Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burberry Group plc has no effect on the direction of Hermes International i.e., Hermes International and Burberry Group go up and down completely randomly.

Pair Corralation between Hermes International and Burberry Group

Assuming the 90 days horizon Hermes International SA is expected to generate 0.45 times more return on investment than Burberry Group. However, Hermes International SA is 2.21 times less risky than Burberry Group. It trades about 0.03 of its potential returns per unit of risk. Burberry Group plc is currently generating about -0.03 per unit of risk. If you would invest  21,550  in Hermes International SA on September 12, 2024 and sell it today you would earn a total of  2,429  from holding Hermes International SA or generate 11.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	83.81%
Values	Daily Returns

Hermes International SA  vs.  Burberry Group plc

Hermes International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Hermes International showed solid returns over the last few months and may actually be approaching a breakup point.

Burberry Group plc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Burberry Group plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Burberry Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hermes International and Burberry Group

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

The idea behind Hermes International SA and Burberry Group plc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.