Correlation Between LVMH Mot and Swatch

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

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

Diversification Opportunities for LVMH Mot and Swatch

0.16

Correlation Coefficient

LVMH Mot  Swatch

Average diversification

The 3 months correlation between LVMH and Swatch is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding LVMH Mot Hennessy and The Swatch Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group and LVMH Mot 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 LVMH Mot Hennessy are associated (or correlated) with Swatch. 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 LVMH Mot i.e., LVMH Mot and Swatch go up and down completely randomly.

Pair Corralation between LVMH Mot and Swatch

Assuming the 90 days horizon LVMH Mot Hennessy is expected to generate 0.46 times more return on investment than Swatch. However, LVMH Mot Hennessy is 2.16 times less risky than Swatch. It trades about -0.01 of its potential returns per unit of risk. The Swatch Group is currently generating about -0.01 per unit of risk. If you would invest  72,000  in LVMH Mot Hennessy on September 14, 2024 and sell it today you would lose (7,480) from holding LVMH Mot Hennessy or give up 10.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.27%
Values	Daily Returns

LVMH Mot Hennessy  vs.  The Swatch Group

LVMH Mot Hennessy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LVMH Mot Hennessy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LVMH Mot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LVMH Mot and Swatch

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

The idea behind LVMH Mot Hennessy 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.