Correlation Between LOREAL ADR and Procter Gamble

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

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

Diversification Opportunities for LOREAL ADR and Procter Gamble

-0.65

Correlation Coefficient

LOREAL ADR  Procter Gamble

Excellent diversification

The 3 months correlation between LOREAL and Procter is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding LOREAL ADR 15EO and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and LOREAL ADR 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 LOREAL ADR 15EO are associated (or correlated) with Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of LOREAL ADR i.e., LOREAL ADR and Procter Gamble go up and down completely randomly.

Pair Corralation between LOREAL ADR and Procter Gamble

Assuming the 90 days trading horizon LOREAL ADR is expected to generate 1.24 times less return on investment than Procter Gamble. In addition to that, LOREAL ADR is 1.79 times more volatile than The Procter Gamble. It trades about 0.02 of its total potential returns per unit of risk. The Procter Gamble is currently generating about 0.04 per unit of volatility. If you would invest  13,471  in The Procter Gamble on September 23, 2024 and sell it today you would earn a total of  2,749  from holding The Procter Gamble or generate 20.41% return on investment over 90 days.

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

LOREAL ADR 15EO  vs.  The Procter Gamble

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

Procter Gamble

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Procter Gamble are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LOREAL ADR and Procter Gamble

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

The idea behind LOREAL ADR 15EO and The Procter Gamble 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.