Correlation Between LVMH Moët and Hermes International

Can any of the company-specific risk be diversified away by investing in both LVMH Moët and Hermes 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 LVMH Moët and Hermes International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LVMH Mot Hennessy and Hermes International SCA, you can compare the effects of market volatilities on LVMH Moët and Hermes 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 LVMH Moët with a short position of Hermes International. Check out your portfolio center. Please also check ongoing floating volatility patterns of LVMH Moët and Hermes International.

Diversification Opportunities for LVMH Moët and Hermes International

0.85

Correlation Coefficient

LVMH Moët  Hermes International

Very poor diversification

The 3 months correlation between LVMH and Hermes is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and Hermes International SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International SCA and LVMH Moët 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 LVMH Mot Hennessy are associated (or correlated) with Hermes International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hermes International SCA has no effect on the direction of LVMH Moët i.e., LVMH Moët and Hermes International go up and down completely randomly.

Pair Corralation between LVMH Moët and Hermes International

Assuming the 90 days horizon LVMH Mot Hennessy is expected to under-perform the Hermes International. In addition to that, LVMH Moët is 1.13 times more volatile than Hermes International SCA. It trades about -0.1 of its total potential returns per unit of risk. Hermes International SCA is currently generating about -0.06 per unit of volatility. If you would invest  237,500  in Hermes International SCA on August 30, 2024 and sell it today you would lose (21,850) from holding Hermes International SCA or give up 9.2% of portfolio value over 90 days.

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

LVMH Mot Hennessy  vs.  Hermes International SCA

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LVMH Mot Hennessy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Hermes International SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hermes International SCA 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 LVMH Moët and Hermes International

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

The idea behind LVMH Mot Hennessy and Hermes International SCA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.