Correlation Between Seche Environnement and Rockfire Resources

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

By analyzing existing cross correlation between Seche Environnement SA and Rockfire Resources plc, you can compare the effects of market volatilities on Seche Environnement and Rockfire Resources 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 Seche Environnement with a short position of Rockfire Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seche Environnement and Rockfire Resources.

Diversification Opportunities for Seche Environnement and Rockfire Resources

-0.71

Correlation Coefficient

Seche Environnement  Rockfire Resources

Pay attention - limited upside

The 3 months correlation between Seche and Rockfire is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Seche Environnement SA and Rockfire Resources plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockfire Resources plc and Seche 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 Seche Environnement SA are associated (or correlated) with Rockfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockfire Resources plc has no effect on the direction of Seche Environnement i.e., Seche Environnement and Rockfire Resources go up and down completely randomly.

Pair Corralation between Seche Environnement and Rockfire Resources

Assuming the 90 days trading horizon Seche Environnement SA is expected to under-perform the Rockfire Resources. But the stock apears to be less risky and, when comparing its historical volatility, Seche Environnement SA is 6.54 times less risky than Rockfire Resources. The stock trades about -0.04 of its potential returns per unit of risk. The Rockfire Resources plc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Rockfire Resources plc on October 6, 2024 and sell it today you would earn a total of  6.00  from holding Rockfire Resources plc or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Seche Environnement SA  vs.  Rockfire Resources plc

Seche Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seche Environnement SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Seche Environnement is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Rockfire Resources plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockfire Resources plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Rockfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seche Environnement and Rockfire Resources

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

The idea behind Seche Environnement SA and Rockfire Resources 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .