Correlation Between L’Oreal Co and Honest

Can any of the company-specific risk be diversified away by investing in both L’Oreal Co and Honest 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 L’Oreal Co and Honest 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 Honest Company, you can compare the effects of market volatilities on L’Oreal Co and Honest 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 L’Oreal Co with a short position of Honest. Check out your portfolio center. Please also check ongoing floating volatility patterns of L’Oreal Co and Honest.

Diversification Opportunities for L’Oreal Co and Honest

-0.78

Correlation Coefficient

L’Oreal Co  Honest

Pay attention - limited upside

The 3 months correlation between L’Oreal and Honest is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Honest Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honest Company and L’Oreal 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 Honest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honest Company has no effect on the direction of L’Oreal Co i.e., L’Oreal Co and Honest go up and down completely randomly.

Pair Corralation between L’Oreal Co and Honest

Assuming the 90 days horizon LOreal Co ADR is expected to under-perform the Honest. But the pink sheet apears to be less risky and, when comparing its historical volatility, LOreal Co ADR is 2.29 times less risky than Honest. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Honest Company is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  415.00  in Honest Company on September 5, 2024 and sell it today you would earn a total of  386.00  from holding Honest Company or generate 93.01% return on investment over 90 days.

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

LOreal Co ADR  vs.  Honest Company

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 weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Honest Company

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Honest Company are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Honest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with L’Oreal Co and Honest

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

The idea behind LOreal Co ADR and Honest Company 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.