Correlation Between LOreal Co and Essity AB

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

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

Diversification Opportunities for LOreal Co and Essity AB

0.81

Correlation Coefficient

LOreal Co  Essity AB

Very poor diversification

The 3 months correlation between LOreal and Essity is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB and LOreal Co 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 Co ADR are associated (or correlated) with Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of LOreal Co i.e., LOreal Co and Essity AB go up and down completely randomly.

Pair Corralation between LOreal Co and Essity AB

Assuming the 90 days horizon LOreal Co ADR is expected to generate 0.86 times more return on investment than Essity AB. However, LOreal Co ADR is 1.16 times less risky than Essity AB. It trades about -0.09 of its potential returns per unit of risk. Essity AB is currently generating about -0.09 per unit of risk. If you would invest  8,167  in LOreal Co ADR on September 14, 2024 and sell it today you would lose (1,002) from holding LOreal Co ADR or give up 12.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

LOreal Co ADR  vs.  Essity AB

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 unsteady 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.

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 LOreal Co and Essity AB

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

The idea behind LOreal Co ADR and Essity AB 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.