Correlation Between Burberry Group and Hermes International

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

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

Diversification Opportunities for Burberry Group and Hermes International

-0.46

Correlation Coefficient

Burberry Group  Hermes International

Very good diversification

The 3 months correlation between Burberry and Hermes is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Burberry Group Plc and Hermes International SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International and Burberry Group 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 Burberry Group Plc 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 has no effect on the direction of Burberry Group i.e., Burberry Group and Hermes International go up and down completely randomly.

Pair Corralation between Burberry Group and Hermes International

Assuming the 90 days horizon Burberry Group Plc is expected to under-perform the Hermes International. In addition to that, Burberry Group is 1.06 times more volatile than Hermes International SA. It trades about -0.01 of its total potential returns per unit of risk. Hermes International SA is currently generating about 0.1 per unit of volatility. If you would invest  10,937  in Hermes International SA on January 26, 2024 and sell it today you would earn a total of  14,503  from holding Hermes International SA or generate 132.6% return on investment over 90 days.

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

Burberry Group Plc  vs.  Hermes International SA

Burberry Group Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Burberry Group Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Hermes International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Hermes International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Burberry Group and Hermes International

The main advantage of trading using opposite Burberry Group and Hermes International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Burberry Group 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 Burberry Group Plc and Hermes International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.