Correlation Between Compagnie and LVMH Mot

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

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

Diversification Opportunities for Compagnie and LVMH Mot

-0.54

Correlation Coefficient

Compagnie  LVMH Mot

Excellent diversification

The 3 months correlation between Compagnie and LVMH is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Chemins and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Compagnie 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 Compagnie de Chemins are associated (or correlated) with LVMH Mot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Compagnie i.e., Compagnie and LVMH Mot go up and down completely randomly.

Pair Corralation between Compagnie and LVMH Mot

Assuming the 90 days trading horizon Compagnie de Chemins is expected to generate 0.88 times more return on investment than LVMH Mot. However, Compagnie de Chemins is 1.14 times less risky than LVMH Mot. It trades about 0.18 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about -0.08 per unit of risk. If you would invest  72,000  in Compagnie de Chemins on September 2, 2024 and sell it today you would earn a total of  18,000  from holding Compagnie de Chemins or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Compagnie de Chemins  vs.  LVMH Mot Hennessy

Compagnie de Chemins

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Chemins are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Compagnie and LVMH Mot

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

The idea behind Compagnie de Chemins and LVMH Mot Hennessy 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.