Correlation Between LOreal SA and Grolleau SAS

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

By analyzing existing cross correlation between LOreal SA and Grolleau SAS, you can compare the effects of market volatilities on LOreal SA and Grolleau SAS 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 SA with a short position of Grolleau SAS. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOreal SA and Grolleau SAS.

Diversification Opportunities for LOreal SA and Grolleau SAS

0.51

Correlation Coefficient

LOreal SA  Grolleau SAS

Very weak diversification

The 3 months correlation between LOreal and Grolleau is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and Grolleau SAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grolleau SAS and LOreal SA 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 SA are associated (or correlated) with Grolleau SAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grolleau SAS has no effect on the direction of LOreal SA i.e., LOreal SA and Grolleau SAS go up and down completely randomly.

Pair Corralation between LOreal SA and Grolleau SAS

Assuming the 90 days horizon LOreal SA is expected to generate 0.57 times more return on investment than Grolleau SAS. However, LOreal SA is 1.74 times less risky than Grolleau SAS. It trades about -0.13 of its potential returns per unit of risk. Grolleau SAS is currently generating about -0.11 per unit of risk. If you would invest  39,145  in LOreal SA on September 4, 2024 and sell it today you would lose (5,795) from holding LOreal SA or give up 14.8% of portfolio value over 90 days.

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

LOreal SA  vs.  Grolleau SAS

LOreal SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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.

Grolleau SAS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grolleau SAS has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with LOreal SA and Grolleau SAS

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

The idea behind LOreal SA and Grolleau SAS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.