Correlation Between Sanofi SA and LVMH Mot

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

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

Diversification Opportunities for Sanofi SA and LVMH Mot

0.44

Correlation Coefficient

Sanofi SA  LVMH Mot

Very weak diversification

The 3 months correlation between Sanofi and LVMH is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sanofi SA 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 Sanofi 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 Sanofi SA 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 Sanofi SA i.e., Sanofi SA and LVMH Mot go up and down completely randomly.

Pair Corralation between Sanofi SA and LVMH Mot

Assuming the 90 days trading horizon Sanofi SA is expected to generate 0.82 times more return on investment than LVMH Mot. However, Sanofi SA is 1.21 times less risky than LVMH Mot. It trades about 0.02 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about 0.0 per unit of risk. If you would invest  8,363  in Sanofi SA on September 26, 2024 and sell it today you would earn a total of  812.00  from holding Sanofi SA or generate 9.71% return on investment over 90 days.

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

Sanofi SA  vs.  LVMH Mot Hennessy

Sanofi SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanofi SA 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.

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 somewhat strong basic indicators, LVMH Mot is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sanofi SA and LVMH Mot

The main advantage of trading using opposite Sanofi SA and LVMH Mot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanofi SA 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 Sanofi SA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.