Correlation Between Auto Trader and Veolia Environnement

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

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

Diversification Opportunities for Auto Trader and Veolia Environnement

0.65

Correlation Coefficient

Auto Trader  Veolia Environnement

Poor diversification

The 3 months correlation between Auto and Veolia is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Veolia Environnement SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement and Auto Trader 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 Auto Trader Group are associated (or correlated) with Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Auto Trader i.e., Auto Trader and Veolia Environnement go up and down completely randomly.

Pair Corralation between Auto Trader and Veolia Environnement

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 1.44 times more return on investment than Veolia Environnement. However, Auto Trader is 1.44 times more volatile than Veolia Environnement SA. It trades about -0.01 of its potential returns per unit of risk. Veolia Environnement SA is currently generating about -0.08 per unit of risk. If you would invest  1,020  in Auto Trader Group on September 13, 2024 and sell it today you would lose (20.00) from holding Auto Trader Group or give up 1.96% of portfolio value over 90 days.

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

Auto Trader Group  vs.  Veolia Environnement SA

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Auto Trader is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental 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.

Pair Trading with Auto Trader and Veolia Environnement

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

The idea behind Auto Trader Group and Veolia Environnement SA 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.