Correlation Between Compagnie Financiere and Swatch Group

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

By analyzing existing cross correlation between Compagnie Financiere Richemont and Swatch Group AG, you can compare the effects of market volatilities on Compagnie Financiere and Swatch 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 Compagnie Financiere with a short position of Swatch Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie Financiere and Swatch Group.

Diversification Opportunities for Compagnie Financiere and Swatch Group

0.92

Correlation Coefficient

Compagnie Financiere  Swatch Group

Almost no diversification

The 3 months correlation between Compagnie and Swatch is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie Financiere Richemont and Swatch Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group AG and Compagnie Financiere 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 Compagnie Financiere Richemont are associated (or correlated) with Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group AG has no effect on the direction of Compagnie Financiere i.e., Compagnie Financiere and Swatch Group go up and down completely randomly.

Pair Corralation between Compagnie Financiere and Swatch Group

Assuming the 90 days horizon Compagnie Financiere Richemont is expected to generate 1.01 times more return on investment than Swatch Group. However, Compagnie Financiere is 1.01 times more volatile than Swatch Group AG. It trades about -0.04 of its potential returns per unit of risk. Swatch Group AG is currently generating about -0.04 per unit of risk. If you would invest  1,922  in Compagnie Financiere Richemont on February 3, 2025 and sell it today you would lose (150.00) from holding Compagnie Financiere Richemont or give up 7.8% of portfolio value over 90 days.

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

Compagnie Financiere Richemont  vs.  Swatch Group AG

Compagnie Financiere

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compagnie Financiere Richemont has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Compagnie Financiere is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Swatch Group AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swatch Group AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of 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.

Pair Trading with Compagnie Financiere and Swatch Group

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

The idea behind Compagnie Financiere Richemont and Swatch Group AG 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.