Correlation Between Sanofi SA and Hermes International

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

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

Diversification Opportunities for Sanofi SA and Hermes International

-0.04

Correlation Coefficient

Sanofi SA  Hermes International

Good diversification

The 3 months correlation between Sanofi and Hermes is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sanofi SA and Hermes International SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International SCA 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 Hermes International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hermes International SCA has no effect on the direction of Sanofi SA i.e., Sanofi SA and Hermes International go up and down completely randomly.

Pair Corralation between Sanofi SA and Hermes International

Assuming the 90 days trading horizon Sanofi SA is expected to under-perform the Hermes International. But the stock apears to be less risky and, when comparing its historical volatility, Sanofi SA is 2.03 times less risky than Hermes International. The stock trades about -0.18 of its potential returns per unit of risk. The Hermes International SCA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  216,400  in Hermes International SCA on September 3, 2024 and sell it today you would lose (9,900) from holding Hermes International SCA or give up 4.57% of portfolio value over 90 days.

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

Sanofi SA  vs.  Hermes International SCA

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.

Hermes International SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hermes International SCA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Sanofi SA and Hermes International

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

The idea behind Sanofi SA and Hermes International SCA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.