Correlation Between TotalEnergies and LOreal SA

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

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

Diversification Opportunities for TotalEnergies and LOreal SA

0.72

Correlation Coefficient

TotalEnergies  LOreal SA

Poor diversification

The 3 months correlation between TotalEnergies and LOreal is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies SE and LOreal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal SA and TotalEnergies 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 TotalEnergies SE are associated (or correlated) with LOreal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal SA has no effect on the direction of TotalEnergies i.e., TotalEnergies and LOreal SA go up and down completely randomly.

Pair Corralation between TotalEnergies and LOreal SA

Assuming the 90 days trading horizon TotalEnergies SE is expected to generate 0.92 times more return on investment than LOreal SA. However, TotalEnergies SE is 1.09 times less risky than LOreal SA. It trades about -0.16 of its potential returns per unit of risk. LOreal SA is currently generating about -0.2 per unit of risk. If you would invest  5,930  in TotalEnergies SE on September 26, 2024 and sell it today you would lose (729.00) from holding TotalEnergies SE or give up 12.29% of portfolio value over 90 days.

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

TotalEnergies SE  vs.  LOreal SA

TotalEnergies SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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.

Pair Trading with TotalEnergies and LOreal SA

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

The idea behind TotalEnergies SE and LOreal 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.