Correlation Between LOreal SA and Schneider Electric

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

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

Diversification Opportunities for LOreal SA and Schneider Electric

-0.18

Correlation Coefficient

LOreal SA  Schneider Electric

Good diversification

The 3 months correlation between LOreal and Schneider is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding LOreal SA and Schneider Electric SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schneider Electric and LOreal 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 LOreal SA are associated (or correlated) with Schneider Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schneider Electric has no effect on the direction of LOreal SA i.e., LOreal SA and Schneider Electric go up and down completely randomly.

Pair Corralation between LOreal SA and Schneider Electric

Assuming the 90 days horizon LOreal SA is expected to generate 0.88 times more return on investment than Schneider Electric. However, LOreal SA is 1.13 times less risky than Schneider Electric. It trades about 0.18 of its potential returns per unit of risk. Schneider Electric SE is currently generating about 0.15 per unit of risk. If you would invest  41,497  in LOreal SA on February 3, 2024 and sell it today you would earn a total of  2,173  from holding LOreal SA or generate 5.24% return on investment over 90 days.

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

LOreal SA  vs.  Schneider Electric SE

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

Schneider Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schneider Electric SE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Schneider Electric sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LOreal SA and Schneider Electric

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

The idea behind LOreal SA and Schneider Electric SE 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.