Correlation Between LOreal Co and Inter Parfums

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

Diversification Opportunities for LOreal Co and Inter Parfums

-0.59

Correlation Coefficient

LOreal Co  Inter Parfums

Excellent diversification

The 3 months correlation between LOreal and Inter is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding LOreal Co ADR and Inter Parfums in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inter Parfums 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 Inter Parfums. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inter Parfums has no effect on the direction of LOreal Co i.e., LOreal Co and Inter Parfums go up and down completely randomly.

Pair Corralation between LOreal Co and Inter Parfums

Assuming the 90 days horizon LOreal Co is expected to generate 1.43 times less return on investment than Inter Parfums. But when comparing it to its historical volatility, LOreal Co ADR is 1.75 times less risky than Inter Parfums. It trades about 0.18 of its potential returns per unit of risk. Inter Parfums is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  12,820  in Inter Parfums on September 14, 2024 and sell it today you would earn a total of  715.50  from holding Inter Parfums or generate 5.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

LOreal Co ADR  vs.  Inter Parfums

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.

Inter Parfums

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inter Parfums are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Inter Parfums reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LOreal Co and Inter Parfums

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

The idea behind LOreal Co ADR and Inter Parfums 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.