Correlation Between ABC Arbitrage and Alstom SA

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

By analyzing existing cross correlation between ABC arbitrage SA and Alstom SA, you can compare the effects of market volatilities on ABC Arbitrage and Alstom SA 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 ABC Arbitrage with a short position of Alstom SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Arbitrage and Alstom SA.

Diversification Opportunities for ABC Arbitrage and Alstom SA

0.67

Correlation Coefficient

ABC Arbitrage  Alstom SA

Poor diversification

The 3 months correlation between ABC and Alstom is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ABC arbitrage SA and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and ABC Arbitrage 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 ABC arbitrage SA are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of ABC Arbitrage i.e., ABC Arbitrage and Alstom SA go up and down completely randomly.

Pair Corralation between ABC Arbitrage and Alstom SA

Assuming the 90 days trading horizon ABC arbitrage SA is expected to under-perform the Alstom SA. But the stock apears to be less risky and, when comparing its historical volatility, ABC arbitrage SA is 2.1 times less risky than Alstom SA. The stock trades about -0.02 of its potential returns per unit of risk. The Alstom SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,163  in Alstom SA on September 23, 2024 and sell it today you would earn a total of  29.00  from holding Alstom SA or generate 1.34% return on investment over 90 days.

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

ABC arbitrage SA  vs.  Alstom SA

ABC arbitrage SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABC arbitrage SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABC Arbitrage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alstom SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alstom SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC Arbitrage and Alstom SA

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

The idea behind ABC arbitrage SA and Alstom 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.