Correlation Between LOreal Co and Hengan International

Can any of the company-specific risk be diversified away by investing in both LOreal Co and Hengan International 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 Hengan International 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 Hengan International Group, you can compare the effects of market volatilities on LOreal Co and Hengan International 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 Hengan International. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOreal Co and Hengan International.

Diversification Opportunities for LOreal Co and Hengan International

0.68

Correlation Coefficient

LOreal Co  Hengan International

Poor diversification

The 3 months correlation between LOreal and Hengan is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Hengan International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengan International 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 Hengan International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengan International has no effect on the direction of LOreal Co i.e., LOreal Co and Hengan International go up and down completely randomly.

Pair Corralation between LOreal Co and Hengan International

Assuming the 90 days horizon LOreal Co ADR is expected to under-perform the Hengan International. But the pink sheet apears to be less risky and, when comparing its historical volatility, LOreal Co ADR is 1.2 times less risky than Hengan International. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Hengan International Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,401  in Hengan International Group on September 13, 2024 and sell it today you would earn a total of  52.00  from holding Hengan International Group or generate 3.71% return on investment over 90 days.

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

LOreal Co ADR  vs.  Hengan International Group

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.

Hengan International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hengan International Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Hengan International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with LOreal Co and Hengan International

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

The idea behind LOreal Co ADR and Hengan International Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.