Correlation Between Veolia Environnement and London Security

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

By analyzing existing cross correlation between Veolia Environnement VE and London Security Plc, you can compare the effects of market volatilities on Veolia Environnement and London Security 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 Veolia Environnement with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Veolia Environnement and London Security.

Diversification Opportunities for Veolia Environnement and London Security

0.31

Correlation Coefficient

Veolia Environnement  London Security

Weak diversification

The 3 months correlation between Veolia and London is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Veolia Environnement VE and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and Veolia Environnement 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 Veolia Environnement VE are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Veolia Environnement i.e., Veolia Environnement and London Security go up and down completely randomly.

Pair Corralation between Veolia Environnement and London Security

Assuming the 90 days trading horizon Veolia Environnement is expected to generate 2.01 times less return on investment than London Security. In addition to that, Veolia Environnement is 1.02 times more volatile than London Security Plc. It trades about 0.08 of its total potential returns per unit of risk. London Security Plc is currently generating about 0.17 per unit of volatility. If you would invest  325,000  in London Security Plc on December 2, 2024 and sell it today you would earn a total of  35,000  from holding London Security Plc or generate 10.77% return on investment over 90 days.

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

Veolia Environnement VE  vs.  London Security Plc

Veolia Environnement

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Veolia Environnement VE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Veolia Environnement is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

London Security Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Security Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, London Security may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Veolia Environnement and London Security

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

The idea behind Veolia Environnement VE and London Security Plc 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.