Correlation Between LOreal SA and Netmedia Group

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

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

Diversification Opportunities for LOreal SA and Netmedia Group

0.3

Correlation Coefficient

LOreal SA  Netmedia Group

Weak diversification

The 3 months correlation between LOreal and Netmedia is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and Netmedia Group SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netmedia Group SA 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 Netmedia Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netmedia Group SA has no effect on the direction of LOreal SA i.e., LOreal SA and Netmedia Group go up and down completely randomly.

Pair Corralation between LOreal SA and Netmedia Group

Assuming the 90 days horizon LOreal SA is expected to generate 0.42 times more return on investment than Netmedia Group. However, LOreal SA is 2.36 times less risky than Netmedia Group. It trades about -0.15 of its potential returns per unit of risk. Netmedia Group SA is currently generating about -0.09 per unit of risk. If you would invest  39,535  in LOreal SA on September 2, 2024 and sell it today you would lose (6,670) from holding LOreal SA or give up 16.87% of portfolio value over 90 days.

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

LOreal SA  vs.  Netmedia Group SA

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.

Netmedia Group SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Netmedia Group SA 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 Netmedia Group

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

The idea behind LOreal SA and Netmedia Group SA 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.