Correlation Between Burberry Group and Swatch Group

Can any of the company-specific risk be diversified away by investing in both Burberry Group 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 Burberry Group and Swatch Group 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 The Swatch Group, you can compare the effects of market volatilities on Burberry Group 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 Burberry Group with a short position of Swatch Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burberry Group and Swatch Group.

Diversification Opportunities for Burberry Group and Swatch Group

-0.13

Correlation Coefficient

Burberry Group  Swatch Group

Good diversification

The 3 months correlation between Burberry and Swatch is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Burberry Group Plc and The Swatch Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group 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 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 has no effect on the direction of Burberry Group i.e., Burberry Group and Swatch Group go up and down completely randomly.

Pair Corralation between Burberry Group and Swatch Group

Assuming the 90 days horizon Burberry Group Plc is expected to under-perform the Swatch Group. In addition to that, Burberry Group is 1.0 times more volatile than The Swatch Group. It trades about -0.15 of its total potential returns per unit of risk. The Swatch Group is currently generating about -0.06 per unit of volatility. If you would invest  32,165  in The Swatch Group on January 17, 2024 and sell it today you would lose (8,685) from holding The Swatch Group or give up 27.0% of portfolio value over 90 days.

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

Burberry Group Plc  vs.  The Swatch Group

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 latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Swatch Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Swatch Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Swatch Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Burberry Group and Swatch Group

The main advantage of trading using opposite Burberry Group and Swatch Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Burberry Group 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 Burberry Group Plc and The Swatch Group 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.