Correlation Between Swatch Group and LVMH Moët

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

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

Diversification Opportunities for Swatch Group and LVMH Moët

0.45

Correlation Coefficient

Swatch Group  LVMH Moët

Very weak diversification

The 1 month correlation between Swatch and LVMH is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Swatch Group AG and LVMH Mot Hennessy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LVMH Mot Hennessy and Swatch 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 Swatch Group AG are associated (or correlated) with LVMH Moët. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LVMH Mot Hennessy has no effect on the direction of Swatch Group i.e., Swatch Group and LVMH Moët go up and down completely randomly.

Pair Corralation between Swatch Group and LVMH Moët

Assuming the 90 days horizon Swatch Group AG is expected to generate 1.26 times more return on investment than LVMH Moët. However, Swatch Group is 1.26 times more volatile than LVMH Mot Hennessy. It trades about 0.01 of its potential returns per unit of risk. LVMH Mot Hennessy is currently generating about -0.12 per unit of risk. If you would invest  1,045  in Swatch Group AG on February 28, 2024 and sell it today you would earn a total of  0.00  from holding Swatch Group AG or generate 0.0% return on investment over 90 days.

Time Period	1 Month [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Swatch Group AG  vs.  LVMH Mot Hennessy

Swatch Group AG

Risk-Adjusted Performance

0 of 100

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

LVMH Mot Hennessy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LVMH Mot Hennessy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Swatch Group and LVMH Moët

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

The idea behind Swatch Group AG and LVMH Mot Hennessy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.