Correlation Between Hermes International and Smcp SAS

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

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

Diversification Opportunities for Hermes International and Smcp SAS

0.69

Correlation Coefficient

Hermes International  Smcp SAS

Poor diversification

The 3 months correlation between Hermes and Smcp is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hermes International SCA and Smcp SAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smcp SAS and Hermes International 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 Hermes International SCA are associated (or correlated) with Smcp SAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smcp SAS has no effect on the direction of Hermes International i.e., Hermes International and Smcp SAS go up and down completely randomly.

Pair Corralation between Hermes International and Smcp SAS

Assuming the 90 days trading horizon Hermes International SCA is expected to generate 0.43 times more return on investment than Smcp SAS. However, Hermes International SCA is 2.32 times less risky than Smcp SAS. It trades about 0.07 of its potential returns per unit of risk. Smcp SAS is currently generating about 0.01 per unit of risk. If you would invest  171,534  in Hermes International SCA on September 26, 2024 and sell it today you would earn a total of  58,266  from holding Hermes International SCA or generate 33.97% return on investment over 90 days.

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

Hermes International SCA  vs.  Smcp SAS

Hermes International SCA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SCA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hermes International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Smcp SAS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smcp SAS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Smcp SAS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hermes International and Smcp SAS

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

The idea behind Hermes International SCA and Smcp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.